    [Analytical Perspectives]
    [Special Analyses and Presentations]
    [10. Aid to State and Local Governments]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 237]]

                   10.  AID TO STATE AND LOCAL GOVERNMENTS \1\
    ---------------------------------------------------------------------------

      \1\ Federal aid to State and local governments is defined as the
    provision of resources by the Federal Government to support a State or
    local program of governmental service to the public. The three primary
    forms of aid are grants, loan subsidies, and tax expenditures.
    ---------------------------------------------------------------------------
      State and local governments have a vital constitutional responsibility
    to provide government services. They have the major role in providing
    domestic public services, such as public education, law enforcement,
    roads, water supply, and sewage treatment. The Federal Government
    contributes to that role both by promoting a healthy economy and by
    providing grants, loans, and tax subsidies to State and local
    governments.
      Federal grants help State and local governments finance programs
    covering most areas of domestic public spending, including income
    support, infrastructure, education, and social services. Federal grant
    outlays were $317.2 billion in 2001 and are estimated to increase to
    $346.5 billion in 2002 and $376.4 billion in 2003.
      Grant outlays for payments for individuals, such as Medicaid, are
    estimated to be 64.3 percent of total grants in 2003; for physical
    capital investment, 15.2 percent; and for all other purposes, largely
    education, training, and social services, 20.5 percent.
      Federal aid to State and local governments is also provided through
    tax expenditures. Tax expenditures are the result of special exclusions,
    exemptions, deductions, credits, deferrals, or tax rates in the Federal
    tax laws.
      The two major tax expenditures benefitting State and local governments
    are the deductibility of personal income and property taxes from gross
    income for Federal income tax purposes, and the exclusion of interest on
    State and local public purpose bonds from Federal taxation. These
    provisions, on an outlay equivalent basis, are estimated to be $80.1
    billion in 2002 and $82.9 billion in 2003. A detailed discussion of the
    measurement and definition of tax expenditures and a complete list of
    the amount of specific tax expenditures are in Chapter 6, ``Tax
    Expenditures.'' As discussed in that chapter, there are generally
    interactions among tax expenditure provisions, so that the estimates
    above only approximate the aggregate effect of these provisions.
      Tax expenditures that especially aid State and local governments are
    displayed separately at the end of Table 6-5 in that chapter.

                  Table 10-1.  FEDERAL GRANT OUTLAYS BY AGENCY
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                   2001     2002      2003
                       Agency                     Actual  Estimate  Proposed
    ------------------------------------------------------------------------
    Department of Agriculture..................     20.2      21.8      22.4
    Department of Commerce.....................      0.4       0.8       0.6
    Department of Education....................     24.0      28.1      33.0
    Department of Energy.......................      0.2       0.3       0.4
    Department of Health and Human Services....    183.1     201.2     220.1
    Department of Housing and Urban Development     26.2      28.0      29.4
    Department of the Interior.................      2.7       2.6       2.7
    Department of Justice......................      6.2       4.3       7.2
    Department of Labor........................      7.7       8.9       8.6
    Department of Transportation...............     36.7      38.7      38.4
    Department of the Treasury.................      0.5       0.5       0.4
    Department of Veterans Affairs.............      0.4       0.5       0.5
    Environmental Protection Agency............      3.8       3.7       4.0
    Federal Emergency Management Agency........      3.2       4.8       6.7
    Other agencies.............................      1.8       2.3       2.1
                                                ----------------------------
       Total...................................    317.2     346.5     376.4
    ------------------------------------------------------------------------

      Table 10-1 shows the distribution of grants by agency. Grant outlays
    for the Department of Health and Human Services are estimated to be
    $220.1 billion in 2003, 58.5 percent of total grants, more than five
    times as much as any other agency.

                      HIGHLIGHTS OF THE FEDERAL AID PROGRAM

      Major proposals in this budget affect Federal aid to State and local
    governments and the important relationships between the levels of
    government. Through the use of grants, the Federal government can share
    with State and local governments the cost and, ultimately, the benefits
    of a better educated, healthier, and safer citizenry. The Administration
    is committed to working with State and local governments to make the
    Federal system more efficient and effective and to improving the design,
    administration, and financial management of Federal grant programs. One
    way the Administration will do this is by expanding a government-wide
    effort to use electronic processing in the administration of grant
    programs, which includes interagency work on standard and streamlined
    forms and processes. Each of the Federal grant-making agencies is
    responsible for working individually and collectively under the auspices
    of the Federal Financial Assistance Management Improvement Act of 1999
    (P.L. 106-107) to simplify grants and provide an electronic option for
    grantees to conduct business with the Federal government.
      Highlights of grants to State and local governments follow. For
    additional information on grants, see the

    [[Page 238]]

    detailed Table 10-3 in this Chapter, and discussions in the Budget
    volume.

    Federal Emergency Management Agency

      The budget provides the Federal Emergency Management Agency (FEMA)
    with $3.5 billion in budget authority in 2003 to create a grant program
    to improve State and local terrorism preparedness. While State and local
    jurisdictions will have discretion to tailor the assistance to meet
    local needs, it is anticipated that more than one-third of the funds
    will be used to improve communications. It is further assumed that an
    additional one-third will be used to equip State and local first
    responders and that the remainder will be used for training, planning,
    technical assistance and administration. The First Responder State/Local
    Preparedness grant program would consolidate several existing programs,
    including a first responder grant previously funded within the
    Department of Justice (funded at $635 million in 2002). As part of this
    consolidation, FEMA will take over the functions of Justice's Office of
    Domestic Preparedness. The program would also encompass the recently
    created FEMA FIRE grant program (funded at $360 million in 2002).

    Education

      The budget requests $36.1 billion in 2003 budget authority for the
    Department of Education for grants to States and local governments for
    education, an increase of $2.0 billion above the 2002 amount of $34.1
    billion. The education proposals in this budget will help States improve
    accountability for school and student performance, increase flexibility,
    and support proven programs.
      The Department of Education seeks to ensure equal access to education
    and promote educational excellence for all students throughout the
    Nation. It promotes educational excellence and access in elementary and
    secondary education by providing formula and competitive grants to
    States and local educational agencies in areas of national priority.
      The budget requests $11.4 billion for Title I grants to school
    districts to help raise student achievement in the Nation's most
    impoverished communities. At this level, funding will have increased 85
    percent since 1993. Major reform is underway for Title I grants which
    have fallen short in meeting their objectives. Historically, Title I has
    done little to raise student achievement as measured by test scores of
    low-income students. For instance, reading scores of at-risk students
    have remained flat over this period. However, in light of this year's
    legislative reforms, the Administration believes that the program now
    holds promise for improving performance by the schools and for the
    students who face the most challenges. Schools that receive Title I
    funds must show academic progress each year, both for students overall
    and for each student group, to ensure that all groups of students are
    proficient in reading and math within 12 years. If a school that
    receives Title I funds does not improve for three consecutive years,
    parents can use Federal funds for outside educational assistance from a
    public or private tutor of their choice. The budget builds a foundation
    for success by investing $1.0 billion in 2003 in the Reading First
    program, a $100 million increase over 2002. Reading is the foundation
    skill for all other learning. The President's goal is to ensure that all
    students can read at grade level by the end of the third grade. The
    Reading First program, initiated through the new Elementary and
    Secondary Education Act (ESEA), will provide funds to States to support
    only the most proven reading practices. The budget includes $75 million
    for Early Reading First, the same level as 2002, to develop model
    programs to help children in high-poverty communities prepare for
    school. The budget also proposes $387 million for the second year of
    Federal support of States' development of annual reading and math
    assessments for grades 3 through 8. These assessments will be used to
    monitor the yearly progress of schools under the new requirements of
    ESEA.
      The budget proposes $665 million for performance-based grants to
    States to promote English language acquisition. Under the new law,
    students served by this program must also show adequate yearly progress,
    thus giving States a strong incentive to improve student performance on
    annual assessments.
      The budget proposes $2.9 billion for the Teacher Quality State Grants
    program to recruit, train, and retain qualified teachers. This funding
    should assist States in ensuring that all new teachers in schools
    receiving Title I funds are highly qualified as required by the new
    ESEA.
      Children with disabilities are among those at greatest risk of being
    left behind. The Individuals with Disabilities Education Act (IDEA)
    establishes the right of children with disabilities to a free and
    appropriate public education. To help States and localities meet their
    responsibilities toward children with disabilities, the budget proposes
    $9.4 billion for the Special Education grant to States program for 2003,
    a $1.0 billion increase. This total includes $437 million for States to
    identify and serve infants and toddlers with disabilities, a $20 million
    increase. In many cases, this early intervention can reduce or even
    eliminate the need for special education as children grow up.
      As part of the President's initiative to tie budget decisions to
    program performance, this budget will launch a multi-year effort to
    reform job training programs across the Federal government, target
    resources to programs with documented effectiveness, and eliminate
    funding for ineffective, duplicative, and overlapping programs. As part
    of this initiative, the budget proposes a new $30 million incentive
    grant, which will be allocated to State Vocational Rehabilitation (VR)
    agencies based on their performance in helping individuals with
    disabilities obtain competitive jobs. While nationwide State VR agency
    performance has improved in recent years, there is still wide variation
    among States.

    Training and Employment

      The budget reflects the Administration's continued efforts to reform
    the Nation's workforce development

    [[Page 239]]

    system and provide job training opportunities to help workers succeed in
    the economy of the 21st Century.
      The Workforce Investment Act (WIA) of 1998 took full effect on July 1,
    2000, as the Job Training Partnership Act (JTPA) was repealed and all
    States began to fully implement the WIA requirements. However, the WIA's
    authorization will expire in 2003, providing the Administration an
    opportunity to evaluate critically the current program structure,
    financing, and performance. The Administration will undertake that work
    in the coming year, and the 2004 Budget will outline a proposal to
    further consolidate training programs. In 2003, estimates indicate that
    more than $9.3 billion will be available for investments in job training
    and other dislocated worker services, including $5 billion in new budget
    authority and $4.3 billion in unspent resources carried forward into
    2003.
      The Administration is proposing short- and longer-term legislative
    reforms to promote flexibility and strengthen the Unemployment Insurance
    (UI) and Employment Service (ES) programs. Near-term reforms are
    designed to meet the immediate needs of unemployed workers during the
    current economic slowdown. Longer-term reforms will enable more workers
    to receive extended UI benefits; reduce employers' Federal payroll
    taxes, spurring economic growth; and allow States to control their own
    administrative funding. The budget also includes two proposals to
    strengthen financial management of the UI program and help States cut
    wasteful benefit overpayments. These proposals would enable the
    Inspector General to uncover fraudulent benefits schemes and train
    States to detect and reduce overpayments; and assist States in their
    efforts to use existing databases to eliminate fraudulent payments to
    ineligible claimants. The budget proposes $12 million for these efforts.
      The Administration also is encouraging greater competition and
    participation by faith-based and community organizations in Federal
    grant programs. To this end, the Department of Labor has scrutinized its
    grant program applications to remove barriers. For example, it
    discovered that under the Women in Apprenticeship and Non-traditional
    Occupations (WANTO) program, applicants were required to demonstrate a
    ``history of commitment to economic and social justice.'' The Department
    of Labor dropped this restrictive language, and received 37
    applications, more than twice the average received in recent years. Of
    the 11 actual grant recipients, 4 were new applicants who never had
    received a WANTO grant.

    Social Services

      The Head Start program gives low-income children a comprehensive
    approach to child development, stressing language and cognitive
    development, health, nutrition, and social competency. Head Start is
    administered by the Administration for Children and Families (ACF) in
    the Department of Health and Human Services. The Administration requests
    $6.7 billion for Head Start for 2003, a $130 million increase above
    2002. The President has proposed to reform Head Start and return it to
    its original focus getting children ready to learn. The Department of
    Health and Human Services and the Department of Education have formed a
    taskforce to assess ways to improve Head Start and lay the groundwork
    for the proposed transfer to the Department of Education as part of the
    program's reauthorization.
      The budget requests $1.7 billion for the Social Services Block Grant
    for 2003. This program provides flexible funds to States for social
    services for low-income individuals and families.

    Income Support

      Food and nutrition assistance.--This budget requests $7.5 billion in
    budget authority for grants for the National School Lunch and School
    Breakfast Programs, which provide free or low-cost nutritious meals to
    children in participating schools. In 2003, the programs will serve an
    estimated 26.3 million lunches and 7.7 million breakfasts daily. The
    Special Supplemental Nutrition Program for Women, Infants, and Children
    (WIC) provides vouchers for nutritious supplemental food packages,
    nutrition education and counseling, and health and immunization
    referrals to low-income women, infants, and children. The budget
    provides $4.8 billion in 2003 for WIC, including a $150 million
    contingency fund. The request is sufficient to serve 7.8 million persons
    monthly and the contingency fund will ensure that the program can expand
    to serve an increasing number of eligible persons should that be
    necessary for any reason.

      Other income security.--The Child Care and Development Fund provides
    grants to States for the purposes of providing low-income families with
    financial assistance for child care, improving the quality and
    availability of child care, and establishing, expanding, or conducting
    early childhood development programs and before- and after-school
    programs. The Child Care Development Fund is funded through both the
    Child Care and Development Block Grant ($2.1 billion proposed for 2003)
    and the Child Care Entitlement to States ($2.7 billion proposed for
    2003).

    Health

      This budget proposes $172.0 billion in outlays for 2003 grants to
    State and local governments for health, $16.4 billion more than for
    2002.

      Transitional Medicare Low-Income Drug Assistance.--The Administration
    proposes to begin to phase in comprehensive drug coverage for lower-
    income Medicare beneficiaries up to 150 percent of poverty, as
    envisioned in all major prescription drug proposals. This proposal would
    allow States to expand drug coverage to Medicare beneficiaries up to 100
    percent of poverty--about $12,000 for a family of two--at current
    Medicaid matching rates, much like existing programs that subsidize
    Medicare premiums and cost-sharing for low-income Medicare
    beneficiaries. Further, as an added incentive for States to expand
    coverage up to 150 percent

    [[Page 240]]

    of poverty--about $17,000 for a family of two--the Federal government
    would pay 90 percent of the States' costs of expansion above 100 percent
    of poverty with States being responsible for the remaining 10 percent.
    This policy eventually would expand drug coverage for up to 3 million
    beneficiaries currently without prescription drug assistance.

      Medicaid.--Medicaid is the largest grant program, with outlays
    projected to be $160.1 billion in 2003, including the changes proposed
    in this budget. In 2001, this Federal-State health care program served
    about 37 million low-income Americans, primarily children, pregnant
    women, the elderly, and those with disabilities. The Federal Government
    spent $129.4 billion, 57 percent of the total program in 2001, while
    States spent $98.4 billion or 43 percent. Medicaid covers one-fourth of
    the Nation's children and is the largest single purchaser of maternity
    care and nursing home and other long-term care services. The elderly and
    disabled made up one-third of Medicaid enrollees in 2001, but accounted
    for approximately two-thirds of spending on benefits. Medicaid pays for
    over one-third of the Nation's long-term care services.
      The Administration proposes several Medicaid initiatives. One
    initiative would extend for one year Transitional Medicaid Assistance,
    which provides health insurance coverage to former welfare recipients
    who would otherwise lose Medicaid eligibility due to earnings from
    employment. The Administration also proposes to strengthen management
    and enforcement of Federal payment policies for hospital, nursing home,
    and school-based health services. The General Accounting Office and the
    Department of Health and Human Services' Inspector General have
    identified questionable Medicaid claiming practices for these services,
    and have recommended increased Federal oversight.

      State Children's Health Insurance Program.--The State Children's
    Health Insurance Program (SCHIP) was established in 1997 in the Balanced
    Budget Act to make available approximately $40 billion over 10 years for
    States to provide health care coverage to low-income, uninsured
    children. The Balanced Budget Act of 1997 authorized annual allotments
    that are available to States for three years; remaining funds were then
    to be redistributed among the States and available for one additional
    year before returning to the Treasury. According to current estimates,
    $3.2 billion in funds will return to the Treasury at the end of 2002 and
    2003. The Administration proposes to extend the availability of these
    expiring funds until 2006. According to current estimates, this
    extension will allow every State to retain some funds. This proposal
    will enable more States to maintain their current coverage levels as
    well as provide additional health insurance coverage to more Americans
    under the Administration's Health Insurance Flexibility and
    Accountability (HIFA) initiative. SCHIP gives States broad flexibility
    in program design while protecting beneficiaries through basic Federal
    standards. Approximately 4.6 million children were enrolled in SCHIP
    programs in 2001.

      Health Insurance Flexibility and Accountability Initiative.--In August
    2001, the Administration introduced the HIFA demonstration initiative,
    which gives States the flexibility they need to design innovative ways
    to increase access to health insurance coverage for the uninsured. The
    HIFA initiative:
        Encourages States to develop comprehensive health insurance
              coverage approaches that utilize available Medicaid and SCHIP
              funding to address insurance coverage for individuals with
              incomes less than twice the official poverty level.
        Gives States the programmatic flexibility to increase health
              insurance coverage through support of private group health
              coverage.
        Simplifies the waiver application process by providing clear
              guidance and data templates.
        Increases accountability in the State and Federal
              partnership by ensuring that Medicaid and SCHIP funds are
              effectively being used to increase health insurance coverage.
      The Administration will continue to build on the HIFA initiative to
    give States the flexibility they need to extend coverage to more of the
    neediest residents and reduce the number of uninsured.

      Bioterrorism.--The budget requests over $1.4 billion to assist States
    and localities prepare for, identify and respond to acts of
    bioterrorism. The President's proposal will improve the ability of State
    public health laboratories to identify dangerous agents, allow hospitals
    to conduct training exercises with the State public health and emergency
    departments, improve coordination between hospitals on a regional basis
    and allow them to purchase better equipment, and improve the
    communication between State public health and emergency response systems
    in the case of an attack.

      Community Health Centers.--This budget requests Federal spending to
    assist State and local governments in increasing access to health care
    by increasing the number of community health center sites. Community
    health centers (CHCs) provide family-oriented, preventive and primary
    health care to over 11 million patients through a network of over 3,400
    health centers sites. CHCs are successfully improving the health status
    of the Nation's underserved populations. The budget builds on the 2002
    Community Health Centers Presidential Initiative to increase the number
    of health center sites by 1,200 to serve an additional 6.1 million
    patients by 2006.

    Natural Resources and Environment

      The Administration requests over $900 million for the Land and Water
    Conservation Fund (LWCF), of which $575 million is for grants and
    assistance programs. Traditionally, funds from the LWCF have been used
    to acquire and conserve lands in national parks, forests, refuges, and
    public lands, and provide grants to States for broad conservation and
    outdoor recreation purposes. Last year, the LWCF funded two of the
    President's priorities, both of which recognize that Federal acquisition
    is not always the best or only way to con

    [[Page 241]]

    serve land and other natural resources. These programs, which include
    the Landowner Incentive Grants and Private Stewardship Grants, provide
    new ways to cooperate with private landowners to enhance habitat for
    imperiled species and encourage conservation efforts on private lands.
      The budget funds the Cooperative Conservation Initiative (CCI) by
    allocating $100 million in matching funds for natural resource
    conservation projects. Projects can range from working with The Nature
    Conservancy to removing invasive species from Channel Islands National
    Park, to working with local communities to reclaim abandoned mine sites.
    Half of these funds would be allocated through cost-shared programs
    between non-Federal partners and the Department of Interior's National
    Park Service, Fish and Wildlife Service, and Bureau of Land Management.
    The other half would be distributed to States as part of the LWCF State
    Grant program.
      The Administration's focus on endangered species involves working with
    partners to prevent species from being on the endangered species list in
    the first place and to recover those already listed. The President's
    budget provides over $200 million in 2003 for such activities through
    various grant programs, including the Cooperative Endangered Species
    Conservation Fund, State and Tribal Wildlife Grant, Landowner Incentive
    Grant and Private Stewardship Grant programs. These programs emphasize
    working with and encouraging States and landowners to protect a variety
    of species and their habitat, thereby garnering matching funds and their
    support of these conservation efforts.
      The Administration also proposes $171 million in grant funding in 2003
    under the recent Brownfields authorizing legislation. This fully funds,
    at the authorized level of $50 million, the new grant program to
    establish State response programs for oversight of private clean-up
    activities. This also provides $121 million in grants to States, tribes
    and municipalities for Brownfields clean-up activities. These grants
    will be used to characterize and assess the contamination of properties,
    capitalize revolving loan funds used for clean-up, and provide job
    training, among other activities.

    Administration of Justice

      The budget increases funding for counter-terrorism and homeland
    security measures by reducing grants and other programs that have
    accomplished their mission, failed to demonstrate a clear impact on
    crime, or have been extensively earmarked by Congress. Despite spending
    billions of dollars since 1994, virtually no evidence links the
    Department of Justice's grant programs to the Nation's falling crime
    rate, and most lack verifiable measures of performance. The President's
    proposal continues to support flexible grant funding for State and local
    law enforcement by merging Byrne Grants, Local Law Enforcement Block
    Grants, and the Community Oriented Policing Services Hiring Grants into
    a new $800 million Justice Assistance Grant Program. While Department of
    Justice grants are reduced by a net total of $1.2 billion, this is more
    than offset by the budget's proposal for $3.5 billion in the Federal
    Emergency Management Agency assistance to improve the terrorism
    preparedness and crisis response capabilities of State and local first
    responders, including police, fire, and rescue personnel.

    Transportation

      Grant outlays for transportation are estimated to be $38.4 billion in
    2003 to assist with transportation infrastructure and related programs,
    including highways, transit, airports and other areas.

      Highways and Transit.--The budget requests $22.1 billion in budgetary
    resources in 2003 for the Federal-aid highways program to maintain and
    improve surface transportation infrastructure, along with improvements
    in the physical condition and safety of the facilities.
      Under the Transportation Equity Act for the 21st Century (TEA-21),
    highway spending is adjusted each year according to a formula in law
    that reflects the most recent data on highway-related receipts. In 2000,
    2001, and 2002 highway spending was increased significantly by these
    annual adjustments. However, for 2003 this formula will produce a
    reduction in the amount of new commitments of highway spending, due in
    large part to a previous overestimate of actual receipts in 2001. Even
    so, in 2003 actual spending on highway construction, including the
    continuation of prior-year projects, will fall less than three percent
    from its all-time high in 2002. Highway spending in 2003 will be 40
    percent higher than in 1998, the first year of TEA-21. These
    infrastructure programs help reduce congestion and expand travel
    options. The Department of Transportation also has several programs that
    regulate highway and pipeline safety to reduce accidents and fatalities.
      The budget requests $7.1 billion in budgetary resources in 2003 to
    assist State and local governments with mass transit programs.

      Airports.--The budget requests $3.4 billion in budgetary resources in
    2003 for the Airport Improvement Program (AIP), which will enhance the
    Nation's airport system through increasing safety and security, reducing
    system delays and providing new capacity to meet anticipated demands. Of
    this amount, $83 million is for the essential air service program.

    Community and Regional Development

      Community development.--Community Development Block Grants (CDBG)
    provide funds for various community development activities directed
    primarily at low-and moderate-income persons. This budget requests $4.7
    billion in budget authority for 2003 in CDBG grants for improving
    housing, public works and services, promoting economic development, and
    acquiring or clearing land. While it favors poorer communities, the
    current distribution of CDBG formula funds includes many grants to
    higher-income cities and counties. The budget proposes a legislative
    change to reduce

    [[Page 242]]

    grants to the wealthiest one-percent of eligible communities. These
    savings allow for the funding of a $16 million initiative to improve
    housing and economic conditions in the Colonias, which are communities
    within 150 miles of the U.S.-Mexican border that lack adequate
    infrastructure and other basic services. In addition, the CDBG formula
    program grows by $95 million in 2003, giving communities an increase in
    their annual CDBG allocations. As 2000 Census data become available the
    Department of Housing and Urban Development will develop proposals for a
    new CDBG allocation formula and process, to allocate more to those who
    need these funds and will use them effectively.
      The budget proposes to streamline the Department of Housing and Urban
    Development's efforts to promote community and economic development by
    eliminating two Community Planning and Development programs--the Rural
    Housing and Economic Development grants and Round II Empowerment Zones
    (EZs) grants. Since 1999, these three programs have received over $430
    million. Evaluations and other performance information provide no
    convincing evidence that these are effective programs. The savings from
    eliminating these programs will be reinvested in the CDBG program.
      The budget supports approaches for increasing affordable housing.
    There is a $100 million increase for the HOME block grant, a flexible
    program that localities can tailor to their particular housing needs.
    This program will produce about 23,000 new affordable rental units in
    2003 and rehabilitate another 23,000.

      Area and regional development.--The budget provides flexible funding
    to meet the needs of rural areas through the Rural Community Advancement
    Program (RCAP). RCAP provides grants, loans, and loan guarantees to
    stimulate economic development and help build rural community facilities
    such as fire stations and medical centers, and water and wastewater
    systems. Under RCAP, States have increased flexibility within the three
    funding streams for Water and Wastewater, Community Facilities, and
    Business and Industry. Department of Agriculture State Directors have
    the authority to transfer up to 25 percent of the funding among any of
    these programs to tailor RCAP assistance to the specific rural economic
    development needs of individual States. The budget proposes $2.8 billion
    in loans and grants for RCAP for 2003.

    Other Functions

      Discussions of these and other Federal aid programs can be found in
    the main budget volume in Section III, and elsewhere. As noted earlier,
    a detailed listing of budget authority and outlays for all grants to
    State and local governments is in Table 10-3 in this chapter.

                             HISTORICAL PERSPECTIVES

      In recent decades, Federal aid to State and local governments has
    become a major factor in the financing of certain government functions.
    The rudiments of the present system date back to the Civil War. The
    Morrill Act, passed in 1862, established the land grant colleges and
    instituted certain federally-required standards for States that received
    the grants, as is characteristic of the present grant programs. Federal
    aid was later initiated for agriculture, highways, vocational education
    and rehabilitation, forestry, and public health. In the depression
    years, Federal aid was extended to meet income security and other social
    welfare needs. However, Federal grants did not become a significant
    factor in Federal Government expenditures until after World War II.
      Table 10-2 displays trends in Federal grants to State and local
    governments since 1960. Section A shows Federal grants by function.
    Functions with a substantial amount of grants are shown separately.
    Grants for the national defense, energy, social security, and the
    veterans benefits and services functions are combined in the ``other
    functions'' line in the table.

                                                                  Table 10-2.  TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS
                                                                                  (Outlays; dollar amounts in billions)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Actual                                                                      Estimate
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
                                             1960     1965     1970     1975     1980     1985      1990      1995      2000      2001      2002      2003      2004      2005      2006      2007
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    A. Distribution of grants by
     function:
      Natural resources and environment..      0.1      0.2      0.4      2.4      5.4       4.1       3.7       4.0       4.6       4.9       5.3       5.5       5.6       5.6       5.6       5.5
      Agriculture........................      0.2      0.5      0.6      0.4      0.6       2.4       1.3       0.8       0.7       0.8       0.9       0.8       0.9       0.9       0.9       0.9
      Transportation.....................      3.0      4.1      4.6      5.9     13.0      17.0      19.2      25.8      32.2      36.7      38.7      38.4      35.6      34.9      35.2      36.4
      Community and regional development.      0.1      0.6      1.8      2.8      6.5       5.2       5.0       7.2       8.7       9.5      11.6      14.2      14.9      14.3      12.6      12.4
      Education, training, employment,         0.5      1.1      6.4     12.1     21.9      17.1      21.8      30.9      36.7      40.1      45.9      51.6      54.2      55.2      55.8      56.8
       and social services...............
      Health.............................      0.2      0.6      3.8      8.8     15.8      24.5      43.9      93.6     124.8     139.3     155.6     172.0     185.2     200.6     217.9     237.7
      Income security....................      2.6      3.5      5.8      9.4     18.5      27.9      36.8      58.4      68.7      76.1      80.0      82.8      84.4      84.9      85.7      86.0
      Administration of justice..........  .......  .......        *      0.7      0.5       0.1       0.6       1.2       5.3       6.6       4.7       7.6       8.5       5.5       5.0       5.0
      General government.................      0.2      0.2      0.5      7.1      8.6       6.8       2.3       2.3       2.1       2.4       2.6       2.2       3.4       2.2       2.3       2.2
      Other..............................        *      0.1      0.1      0.2      0.7       0.8       0.8       0.8       0.9       1.0       1.2       1.3       1.3       1.3       1.4       1.4
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total............................      7.0     10.9     24.1     49.8     91.4     105.9     135.3     225.0     284.7     317.2     346.5     376.4     394.0     405.4     422.6     444.4

    B. Distribution of Grants by BEA
     Category:
      Discretionary......................      N/A      2.9     10.2     21.0     53.3      55.5      63.3      94.0     116.7     131.1     143.7     155.4     156.8     154.5     153.7     154.8
      Mandatory..........................      N/A      8.0     13.9     28.8     38.1      50.4      72.0     131.0     168.0     186.2     202.8     221.0     237.1     250.9     268.9     289.5
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total............................      7.0     10.9     24.1     49.8     91.4     105.9     135.3     225.0     284.7     317.2     346.5     376.4     394.0     405.4     422.6     444.4

    C. Composition:
      Current dollars:
        Payments for individuals \1\.....      2.5      3.7      8.7     16.8     32.6      50.1      77.3     144.4     182.6     203.9     223.2     242.1     256.6     272.9     291.6     313.3
        Physical capital \1\.............      3.3      5.0      7.1     10.9     22.6      24.9      27.2      39.6      48.7      53.4      56.8      57.2      55.5      53.7      54.0      54.2
        Other grants.....................      1.2      2.2      8.3     22.2     36.2      30.9      30.9      41.0      53.4      59.9      66.5      77.2      81.8      78.8      77.0      76.8
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
          Total..........................      7.0     10.9     24.1     49.8     91.4     105.9     135.3     225.0     284.7     317.2     346.5     376.4     394.0     405.4     422.6     444.4

      Percentage of total grants:
        Payments for individuals \1\.....    35.3%    34.1%    36.2%    33.6%    35.7%     47.3%     57.1%     64.2%     64.1%     64.3%     64.4%     64.3%     65.1%     67.3%     69.0%     70.5%
        Physical capital \1\.............    47.3%    45.7%    29.3%    21.9%    24.7%     23.5%     20.1%     17.6%     17.1%     16.8%     16.4%     15.2%     14.1%     13.3%     12.8%     12.2%
        Other grants.....................    17.4%    20.2%    34.5%    44.5%    39.6%     29.2%     22.8%     18.2%     18.8%     18.9%     19.2%     20.5%     20.8%     19.4%     18.2%     17.3%
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
          Total..........................   100.0%   100.0%   100.0%   100.0%   100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%

      Constant (FY 1996) dollars:
        Payments for individuals \1\.....     11.3     15.9     31.7     45.4     60.2      70.7      90.8     147.4     169.9     185.7     199.8     211.9     219.6     228.2     238.2     249.9
        Physical capital \1\.............     15.8     22.4     25.2     23.9     36.1      31.8      30.3      40.4      45.4      48.6      50.6      49.7      47.1      44.5      43.6      42.7
        Other grants.....................      8.3     12.8     36.1     67.2     72.2      44.5      36.8      42.0      46.8      51.0      55.3      62.7      64.9      60.9      58.0      56.5
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
          Total..........................     35.3     51.2     92.9    136.5    168.5     147.0     157.9     229.8     262.2     285.3     305.8     324.3     331.6     333.7     339.8     349.1

    D. Total grants as a percent of:
      Federal outlays:
        Total............................     7.6%     9.2%    12.3%    15.0%    15.5%     11.2%     10.8%     14.8%     15.9%     17.0%     16.9%     17.7%     18.0%     17.8%     17.8%     18.0%
        Domestic programs \2\............    18.0%    18.3%    23.2%    21.7%    22.2%     18.2%     17.1%     21.6%     22.0%     22.9%     22.2%     23.2%     23.4%     23.2%     23.1%     23.2%
      State and local expenditures.......    19.2%    20.1%    24.1%    27.1%    30.4%     24.2%     21.0%     25.1%     24.4%     25.2%       N/A       N/A       N/A       N/A       N/A       N/A
      Gross domestic product.............     1.4%     1.6%     2.4%     3.2%     3.3%      2.6%      2.4%      3.1%      2.9%      3.1%      3.3%      3.4%      3.4%      3.3%      3.3%      3.3%

    E. As a share of total State and
     local gross investments:
      Federal capital grants.............    24.6%    25.5%    25.4%    25.9%    35.4%     30.2%     21.9%     25.8%     22.1%     23.0%       N/A       N/A       N/A       N/A       N/A       N/A
      State and local own-source             75.4%    74.5%    74.6%    74.1%    64.6%     69.8%     78.1%     74.2%     77.9%     77.0%       N/A       N/A       N/A       N/A       N/A       N/A
       financing.........................
                                          ----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total............................   100.0%   100.0%   100.0%   100.0%   100.0%    100.0%    100.0%    100.0%    100.0%    100.0%       N/A       N/A       N/A       N/A       N/A       N/A
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    N/A = Not available.
    * 50 million or less.
    \1\ Grants that are both payments for individuals and capital investment are shown under capital investment.
    \2\ Excludes national defense, international affairs, net interest, and undistributed offsetting receipts.

      Federal grants for transportation increased to $3.0 billion, or 43
    percent of all Federal grants, in 1960 after initiation of aid to States
    to build the Interstate Highway System in the late 1950s.
      By 1970 there had been significant increases in the relative amounts
    for education, training, employment, social services, and health
    (largely Medicaid).
      In the early and mid-1970s, major new grants were created for natural
    resources and environment (construction of sewage treatment plants),
    community and regional development (community development block grants),
    and general government (general revenue sharing).
      Since the late 1970s changes in the relative amounts among functions
    reflect steady growth of grants for health (Medicaid) and income
    security. The functions with the largest amount of grants are health;
    income security; education, training, employment, and social services;
    and transportation, with combined estimated grant outlays of $344.8
    billion or 92 percent of total grant outlays in 2003.
      The increase in total outlays for grants overall since 1990 has been
    driven by increases in grants for health, which more than tripled from
    $43.9 billion in 1990 to an estimated $172.0 billion in 2003. The income
    security; education, training, employment, and social services; and
    transportation functions also increased substantially, but at a slower
    rate than the increase for health.
      Section B of the Table shows the distribution of grants divided into
    mandatory and discretionary spending.
      Funding required for grant programs classified as mandatory occurs in
    authorizing legislation. Funding levels for mandatory programs can only
    be changed by changing eligibility criteria or benefit formulas
    established in law and are usually not limited by the

    [[Page 243]]

    annual appropriations process. Outlays for mandatory grant programs are
    estimated to be $221.0 billion in 2003. The three largest mandatory
    grant programs are Medicaid, with estimated outlays of $160.1 billion in
    2003, Temporary Assistance for Needy Families, $19.4 billion in 2003,
    and Food Stamp grants for State administration and child nutrition
    programs, with combined outlays of $14.6 billion in 2003.
      The funding level for discretionary grant programs is determined
    annually through appropriations acts. Outlays for discretionary grant
    programs are estimated to be $155.4 billion in 2003. Table 10-3 at the
    end of this chapter identifies discretionary and mandatory grant
    programs separately. For more information on the Budget Enforcement Act
    and these categories, see

    [[Page 244]]

    Chapter 25 ``Budget System and Concepts and Glossary'' in this volume.
      Section C of Table 10-2 shows the composition of grants divided into
    three major categories: payments for individuals, grants for physical
    capital, and other grants.\2\ Grant outlays for payments for
    individuals, which are mainly entitlement programs in which the Federal
    Government and the States share the costs, have grown significantly as a
    percent of total grants. They increased from 57.1 percent of the total
    in 1990 to 64.3 percent of the total in 2001. While payments for
    individuals will comprise the same percent of grants in 2003 as 2001,
    they are estimated to increase to an estimated 70.5 percent of the total
    by 2007.
    ---------------------------------------------------------------------------
      \2\ Certain housing grants are classified in the budget as both
    payments for individuals and physical capital spending. In the text and
    tables in this section, these grants are included in the category for
    physical capital spending.
    ---------------------------------------------------------------------------
      These grants are distributed through State or local governments to
    provide cash or in-kind benefits that constitute income transfers to
    individuals or families. The major grant in this category is Medicaid.
    Temporary Assistance for Needy Families, Food Stamps administration,
    child nutrition programs, and housing assistance are also large grants
    in this category.
      Grants for physical capital assist States and localities with
    construction and other physical capital activities. The major capital
    grants are for highways, but there are also grants for airports, mass
    transit, sewage treatment plant construction, community development, and
    other facilities. Grants for physical capital were almost half of total
    grants in 1960, shortly after grants began for construction of the
    Interstate Highway System. The relative share of these outlays has
    declined, as payments for individuals have grown. In 2003, grants for
    physical capital are estimated to be 15.2 percent of total grants.
      The other grants are primarily for education, training, employment,
    and social services. These grants increased to 44.5 percent of total
    grants by 1975, and are projected to be 20.5 percent of total grants in
    2003.
      Section C of Table 10-2 also shows these three categories in constant
    dollars. In constant 1996 dollars, total grants increase from $157.9
    billion in 1990 to an estimated $324.3 billion in 2003, an average
    increase of 5.7 percent per year. During this same period, grants for
    payments to individuals are estimated to increase an average of 6.7
    percent per year; grants for physical capital an average of 3.9 percent
    per year, and other grants an average of 4.2 percent per year.
      In contrast to these increases, outlays for total grants in constant
    1996 dollars decreased during the 1980s, from $168.5 billion in 1980 to
    $157.9 billion in 1990.
      Section D of this table shows grants as a percentage of Federal
    outlays, State and local expenditures, and gross domestic product.
    Grants have increased as a percentage of total Federal outlays from 10.8
    percent in 1990 to an estimated 17.7 percent in 2003. Grants as a
    percentage of domestic spending are estimated to be 23.2 percent in
    2003.
      As a percentage of total State and local expenditures, grants have
    increased from 21.0 percent in 1990 to 25.2 percent in 2001.
      Section E shows the relative contribution of physical capital grants
    in assisting States and localities with gross investment. After a slight
    increase to 25.8 percent in 1995, Federal capital grants have declined
    to 23.0 percent of State and local gross investment in 2001.

         OTHER INFORMATION ON FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

      Additional information regarding aid to State and local governments
    can be found elsewhere in this budget and in other documents.
      Major public physical capital investment programs providing Federal
    grants to State and local governments are identified in Chapter 7,
    ``Federal Investment Spending and Capital Budgeting.''
      Data for summary and detailed grants to State and local governments
    can be found in many sections of a separate document entitled Historical
    Tables. Section 12 of that document is devoted exclusively to grants to
    State and local governments. Additional information on grants can be
    found in Section 6 (Composition of Federal Government Outlays); Section
    9 (Federal Government Outlays for Investment: Major Physical Capital,
    Research and Development, and Education and Training); Section 11
    (Federal Government Payments for Individuals); and Section 15 (Total
    (Federal and State and Local) Government Finances).
      In addition to these sources, a number of other sources of information
    are available that use slightly different concepts of grants, provide
    State-by-State information, provide information on how to apply for
    Federal aid, or display information about audits.
      Government Finances, published annually by the Bureau of the Census in
    the Department of Commerce, provides data on public finances, including
    Federal aid to State and local governments.
      The Survey of Current Business, published monthly by the Bureau of
    Economic Analysis in the Department of Commerce, provides data on the
    national income and product accounts (NIPA), a broad statistical concept
    encompassing the entire economy. These accounts include data on Federal
    grants to State and local governments. Data using the NIPA concepts
    appear in this volume in Chapter 17, ``National Income and Product
    Accounts.''
      The Budget Information for States (BIS) report provides estimates of
    State-by-State funding allocations for the largest formula grant
    programs for the past, present, and budget year. These programs comprise
    approximately 85 percent of total Federal aid to State

    [[Page 245]]

    and local governments. The document is prepared by the Office of
    Management and Budget soon after the budget is released.
      Federal Aid to States, a report prepared by the Bureau of the Census,
    shows Federal spending by State for grants for the most recently
    completed fiscal year.
      The Consolidated Federal Funds Report is an annual document that shows
    the distribution of Federal spending by State and county areas and by
    local governmental jurisdictions. It is prepared by the Bureau of the
    Census.
      The Federal Assistance Awards Data System (FAADS) provides
    computerized information about current grant funding. Data on all direct
    assistance awards are provided quarterly by the Bureau of the Census to
    the States and to the Congress.
      The Catalog of Federal Domestic Assistance is a primary reference
    source for communities wishing to apply for grants and other domestic
    assistance. The Catalog is prepared by the General Services
    Administration with data collected by the Office of Management and
    Budget and is available from the Government Printing Office. The basic
    edition of the Catalog is usually published in June and an update is
    generally prepared in December. It contains a detailed listing of grant
    and other assistance programs; discussions of eligibility criteria,
    application procedures, and estimated obligations; and related
    information.
      The Federal Audit Clearinghouse maintains an on-line database (http://
    harvester.census.gov/sac) that provides access to summary information
    about audits conducted under OMB Circular A-133, ``Audits to States,
    Local Governments, and Non-Profit Organizations.'' Information is
    available for each audited entity, including the amount of Federal money
    expended by program and whether there were audit findings.

                           DETAILED FEDERAL AID TABLE

      Table 10-3, ``Federal Grants to State and Local Governments-Budget
    Authority and Outlays,'' provides detailed budget authority and outlay
    data for grants. This table displays discretionary and mandatory grant
    programs separately.

    [[Page 246]]

                 Table 10-3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS--BUDGET AUTHORITY AND OUTLAYS
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                Budget Authority                             Outlays
    Function, Category, Agency and ---------------------------------------------------------------------------------
                Program                 2001         2002          2003          2001         2002          2003
                                      Actual      Estimate      Estimate       Actual      Estimate      Estimate
    ----------------------------------------------------------------------------------------------------------------
           NATIONAL DEFENSE
    Discretionary:
      Federal Emergency Management
       Agency:
        Emergency management                47            91       71                47            91            71
         planning and assistance..
                                   ---------------------------------------------------------------------------------
          Total, discretionary....          47            91       71                47            91            71
                                   ---------------------------------------------------------------------------------
            Total, national                 47            91       71                47            91            71
             defense..............
                                   =================================================================================
                ENERGY
    Discretionary:
      Department of Energy:
        Energy Programs:
          Energy conservation.....         195           275      361               177           250           350
                                   ---------------------------------------------------------------------------------
          Total, discretionary....         195           275      361               177           250           350
                                   =================================================================================
    Mandatory:
      Tennessee Valley Authority:
        Tennessee Valley Authority         315           329      338               315           329           338
         fund.....................
                                   ---------------------------------------------------------------------------------
          Total, mandatory........         315           329      338               315           329           338
                                   ---------------------------------------------------------------------------------
            Total, energy.........         510           604      699               492           579           688
                                   =================================================================================
         NATURAL RESOURCES AND
              ENVIRONMENT
    Discretionary:
      Department of Agriculture:
        Natural Resources
         Conservation Service:
          Watershed rehabilitation  ...........            2   ............  ...........            1   ............
           program................
          Resource conservation     ...........  ............  ............           1             1   ............
           and development........
          Emergency watershed               82            34       41                66            64            75
           protection.............
        Forest Service:
          State and private                236           221      133               131           215           160
           forestry...............
          Management of national             6             5        5                 6             5             5
           forest lands for
           subsistence uses.......
      Department of Commerce:
        National Oceanic and
         Atmospheric
         Administration:
          Operations, research,              5             5        5                 3             3             3
           and facilities.........
          Pacific coastal salmon           110           157      110                35           290           110
           recovery...............
      Department of the Interior:
        Office of Surface Mining
         Reclamation and
         Enforcement:
          Regulation and                    51            57       52                51            57            56
           technology.............
          Abandoned mine                   196           185      157               146           117           116
           reclamation fund.......
        Bureau of Reclamation:
          Bureau of Reclamation             12             7   ............          13            12             3
           loan subsidy...........
        United States Fish and
         Wildlife Service:
          Commercial salmon         ...........  ............  ............  ...........            5   ............
           fishery capacity
           reduction..............
          State and tribal                  50            60       60        ...........           20            38
           wildlife grants........
          Federal aid in wildlife           50   ............  ............          50   ............  ............
           restoration............
          Cooperative endangered           105            96       91                20            63           100
           species conservation
           fund...................
          Wildlife conservation              1   ............  ............           1   ............  ............
           and appreciation fund..
          Stewardship grants......  ...........           10       10        ...........            2             5
          Landowner incentive       ...........           40       50        ...........            6            16
           program................
          Miscellaneous permanent            3             3        3                 2             3             2
           appropriations.........
        National Park Service:
          Urban park and                    30            30   ............           1             8            21
           recreation fund........
          National recreation and            1             1   ............           1             1   ............
           preservation...........
          Land acquisition and              90           144      200                10            23            55
           State assistance.......
          Historic preservation             94            74       67                55           127            89
           fund...................
      Environmental Protection
       Agency:
        State and tribal                 3,671         3,738    3,464             3,548         3,466         3,737
         assistance grants \1\....
        Hazardous substance                171           171      175               141           170           170
         superfund................
        Leaking underground                 64            63       62                61            65            71
         storage tank trust fund..
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\       5,028         5,103    4,685             4,342         4,724         4,832
                                   =================================================================================

    [[Page 247]]

    Mandatory:
      Department of the Interior:
        Bureau of Land Management:
          Miscellaneous permanent            7            15       27                 7            15            26
           payment accounts.......
        Minerals Management
         Service:
          National forests fund,             4             3        3                 4             3             3
           Payment to States......
          Leases of lands acquired           2             1        1                 2             1             1
           for flood control,
           navigation, and allied
           purposes...............
        United States Fish and
         Wildlife Service:
          Federal aid in wildlife          289           213      226               223           232           276
           restoration............
          Sport fish restoration..         301           357      338               291           311           331
        Departmental Management:
          Everglades watershed      ...........  ............  ............           6             6             6
           protection.............
          Everglades restoration             2   ............  ............           2             3             1
           account................
      Department of the Treasury:
        Financial Management
         Service:
          Payment to terrestrial             5             5        5                 5             5             5
           wildlife habitat
           restoration trust fund.
                                   ---------------------------------------------------------------------------------
          Total, mandatory........         610           594      600               540           576           649
                                   ---------------------------------------------------------------------------------
            Total, natural               5,638         5,697    5,285             4,882         5,300         5,481
             resources and
             environment \1\......
                                   =================================================================================
              AGRICULTURE
    Discretionary:
      Department of Agriculture:
        Departmental
         Administration:
          Outreach for socially              3             3        3                 2             3             3
           disadvantaged farmers..
        Cooperative State
         Research, Education, and
         Extension Service:
          Extension activities....         454           465      448               449           502           455
          Research and education           246           252      242               232           246           247
           activities.............
          Integrated activities...          19            15       15                 3            11            14
        Agricultural Marketing
         Service:
          Payments to States and             1             1        1                 1             1             1
           possessions............
        Farm Service Agency:
          State mediation grants..           3             3        3                 2             2             3
                                   ---------------------------------------------------------------------------------
          Total, discretionary....         726           739      712               689           765           723
                                   =================================================================================
    Mandatory:
      Department of Agriculture:
        Office of the Secretary:
          Fund for rural America..          10   ............  ............          11             4            11
        Farm Service Agency:
          Commodity Credit                  56           117      107                56           117           107
           Corporation fund.......
                                   ---------------------------------------------------------------------------------
          Total, mandatory........          66           117      107                67           121           118
                                   ---------------------------------------------------------------------------------
            Total, agriculture....         792           856      819               756           886           841
                                   =================================================================================
      COMMERCE AND HOUSING CREDIT
    Mandatory:
      Department of Commerce:
        National Oceanic and
         Atmospheric
         Administration:
          Promote and develop                5            11        4                 6            11             8
           fishery products and
           research pertaining to
           American fisheries.....
                                   ---------------------------------------------------------------------------------
          Total, mandatory........           5            11        4                 6            11             8
                                   ---------------------------------------------------------------------------------
            Total, commerce and              5            11        4                 6            11             8
             housing credit.......
                                   =================================================================================
            TRANSPORTATION
    Discretionary:
      Department of
       Transportation:
        Coast Guard:
          Boat safety.............  ...........  ............  ............           1   ............  ............
        Federal Aviation
         Administration:
          Grants-in-aid for                  3             3        4             2,020         2,801         3,273
           airports (Airport and
           airway trust fund) \1\.

    [[Page 248]]

        Federal Highway
         Administration:
          State infrastructure      ...........           -6   ............           3             7             5
           banks..................
          Appalachian development   ...........          200   ............          83            92           106
           highway system.........
          Highway-related safety    ...........  ............  ............  ...........            1   ............
           grants.................
          Appalachian development          254   ............  ............           9           111            67
           highway system (Highway
           trust fund)............
          Federal-aid highways \1\          23            24       24            27,098        28,040        27,297
          Miscellaneous                    605           148   ............          58           408           257
           appropriations.........
          Miscellaneous highway          1,210           100   ............          71           306           309
           trust funds............
        Federal Motor Carrier
         Safety Administration:
          National motor carrier           160           191      173               110           180           183
           safety program.........
          Motor carrier safety....  ...........            5       10        ...........            4             9
          Border enforcement        ...........  ............      18        ...........  ............           16
           program................
        National Highway Traffic
         Safety Administration:
          Highway traffic safety           202           212      214               196           218           222
           grants.................
        Federal Railroad
         Administration:
          Emergency railroad        ...........  ............  ............           4   ............  ............
           rehabilitation and
           repair.................
          Local rail freight        ...........  ............  ............           1             1   ............
           assistance.............
          Alaska railroad                   30            20   ............          28            25            37
           rehabilitation.........
          Railroad research and              3             4        2                 2             2             3
           development............
          Conrail commuter          ...........  ............  ............           2             1   ............
           transition assistance..
        Federal Transit
         Administration:
          Research, training, and   ...........  ............  ............           1             1             1
           human resources........
          Job access and reverse           100           125      150                39            67            95
           commute grants.........
          Interstate transfer       ...........  ............  ............           3             3             2
           grants-transit.........
          Washington Metropolitan   ...........  ............  ............         116            54            36
           Area Transit Authority.
          Formula grants \1\......       4,517         3,565    3,839             4,078         3,713         3,535
          Capital investment             2,695         2,991    3,036             1,902         1,771         2,366
           grants \1\.............
          Transit planning and             156           101      105               102           132           139
           research...............
          Discretionary grants      ...........  ............  ............         722           714           386
           (Highway trust fund,
           mass transit account)..
        Research and Special
         Programs Administration:
          Pipeline safety.........          22            19       19                14            19            19
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\       9,980         7,702    7,594            36,663        38,671        38,363
                                   =================================================================================
    Mandatory:
      Department of
       Transportation:
        Federal Aviation
         Administration:
          Grants-in-aid for              2,594         3,173    3,400        ...........  ............  ............
           airports (Airport and
           airway trust fund) \1\.
        Federal Highway
         Administration:
          Federal-aid highways \1\      32,632        34,822   30,855        ...........  ............  ............
        Research and Special
         Programs Administration:
          Emergency preparedness            17            13       13                10            15            13
           grants.................
                                   ---------------------------------------------------------------------------------
          Total, mandatory \1\....      35,243        38,008   34,268                10            15            13
                                   ---------------------------------------------------------------------------------
            Total, transportation       45,223        45,710   41,862            36,673        38,686        38,376
             \1\..................
                                   =================================================================================
        COMMUNITY AND REGIONAL
              DEVELOPMENT
    Discretionary:
      Department of Agriculture:
        Rural Development:
          Rural community                1,090           710      696               803           684           673
           advancement program....
        Rural Utilities Service:
          Distance learning and             27            49       31                10            16            27
           telemedicine program...
        Rural Business--
         Cooperative Service:
          Rural cooperative                 33             8        9                 3            26            14
           development grants.....
        Forest Service:
          Southeast Alaska                   5   ............  ............           7             7             1
           economic disaster fund.
      Department of Commerce:
        Economic Development
         Administration:
          Economic development             443           353      335               356           479           450
           assistance programs....
      Department of Housing and
       Urban Development:
        Public and Indian Housing
         Programs:
          Moving to work..........  ...........  ............  ............           3             3   ............
        Community Planning and
         Development:
          Community development          5,112         7,000    4,732             4,939         5,235         5,878
           block grants \1\.......

    [[Page 249]]

          Urban development action  ...........  ............  ............           1            10            10
           grants.................
          Community development             30            15        7                 7            11            15
           loan guarantees subsidy
          Brownfields                       25            25       25                 4            26            31
           redevelopment..........
          Empowerment zones/               185            45   ............          31            89           104
           enterprise communities.
        Office of Lead Hazard
         Control and Healthy
         Homes:
          Lead hazard reduction...         100           110      126                86            95           101
      Department of the Interior:
        Bureau of Indian Affairs:
          Operation of Indian              149           153      149               125           146           149
           programs...............
          Indian guaranteed loan             5             6        5                 4             6             5
           subsidy................
      Federal Emergency Management
       Agency:
        Emergency management               267           499    3,629               217           380         1,904
         planning and assistance
         \1\......................
        Disaster relief \1\.......       3,055         5,498    1,546             2,734         4,122         4,567
        National pre-disaster       ...........  ............     300        ...........  ............           75
         mitigation fund..........
        Disaster assistance for     ...........  ............  ............          46            54            19
         unmet needs..............
        National flood mitigation           20            20       20                13            21            23
         fund.....................
      Appalachian Regional                  70            64       59                86           105            87
       Commission.................
      Delta Regional Authority....          19             9        9        ...........            1             9
      Denali Commission...........          55            91       30                11            90            76
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\      10,690        14,655   11,708             9,486        11,606        14,218
                                   =================================================================================
    Mandatory:
      Department of the Interior:
        Bureau of Indian Affairs:
          Indian direct loan        ...........            4   ............           1             4   ............
           subsidy................
                                   ---------------------------------------------------------------------------------
          Total, mandatory........  ...........            4   ............           1             4   ............
                                   ---------------------------------------------------------------------------------
            Total, community and        10,690        14,659   11,708             9,487        11,610        14,218
             regional development
             \1\..................
                                   =================================================================================
         EDUCATION, TRAINING,
        EMPLOYMENT, AND SOCIAL
               SERVICES
    Discretionary:
      Department of Commerce:
        National
         Telecommunications and
         Information
         Administration:
          Public                            30            29       32                15            27            33
           telecommunications
           facilities, planning
           and construction.......
          Information                       22             6   ............           9            20            20
           infrastructure grants..
      Department of Education:
        Office of Elementary and
         Secondary Education:
          Reading excellence......         277           195   ............         124           263           258
          Indian education........         113           117      117                76           110           116
          Impact aid..............         987         1,136    1,133             1,021         1,146         1,116
          Chicago litigation        ...........  ............  ............           1             1   ............
           settlement.............
          Education reform........         611   ............  ............         987           888           241
          Education for the              9,102        11,650   13,325             8,619         9,353        11,783
           disadvantaged..........
          School improvement             4,432         6,959    6,501             2,721         4,269         5,992
           programs \1\...........
        Office of English Language
         Acquisition:
          English language                 353           622      622               344           477           570
           acquisition............
        Office of Special
         Education and
         Rehabilitative Services:
          Special education.......       5,817         8,371    9,391             5,552         6,625         7,895
          Rehabilitation services          137           181      207               118           236           198
           and disability research
          American Printing House           12            14       14                11            19            14
           for the Blind..........
        Office of Vocational and
         Adult Education:
          Vocational and adult           1,777         1,893    1,863             1,651         1,756         1,843
           education..............
        Office of Postsecondary
         Education:
          Higher education........         377           365      365               300           443           374
        Office of Student
         Financial Assistance:
          Student financial                 55            67   ............          43            63            54
           assistance.............
        Office of Educational
         Research and Improvement:
          Education research,              150   ............  ............          86           216            40
           statistics, and
           assessment.............
      Department of Health and
       Human Services:
        Administration for
         Children and Families:
          Promoting safe and                 3            68      223                 3            17            88
           stable families........
          Children and families          7,607         8,080    8,130             6,614         7,403         7,967
           services programs......
        Administration on Aging:
          Aging services programs.       1,104         1,201    1,342               949         1,137         1,295

    [[Page 250]]

      Department of the Interior:
        Bureau of Indian Affairs:
          Operation of Indian              243           271      251               230           270           251
           programs...............
      Department of Labor:
        Employment and Training
         Administration:
          Training and employment        4,090         3,827    3,399             3,132         4,025         4,201
           services \1\...........
          Community service                 97           101       97               102            99           100
           employment for older
           Americans..............
          State unemployment               193           167      156               119           201           217
           insurance and
           employment service
           operations \1\.........
          Unemployment trust fund.       1,049         1,052      874             1,100           896           890
      Corporation for National and
       Community Service:
        Domestic volunteer service          74            81      100                70            81            92
         programs, operating
         expenses.................
        National and community             242           213      339               239           228           275
         service programs,
         operating expenses.......
      Corporation for Public               360           375      390               360           375           390
       Broadcasting...............
      District of Columbia:
        District of Columbia
         General and Special
         Payments:
          Federal payment for               17            17       17                17            17            17
           resident tuition
           support................
      Institute of American Indian
       and Alaska Native Culture
       and Arts:
        Payment to the institute..  ...........  ............       1        ...........  ............            1
      National Endowment for the
       Arts:
        National Endowment for the          34            34       34                32            38            36
         Arts: grants and
         administration...........
        Challenge America arts               3             7        7                 1             6             7
         fund.....................
      Institute of Museum and
       Library Services:
        Office of Museum Services:          23            24       25                22            33            33
         grants and administration
        Office of Library                  203           193      175               167           226           226
         Services: grants and
         administration...........
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\      39,594        47,316   49,130            34,835        40,964        46,633
                                   =================================================================================
    Mandatory:
      Department of Education:
        Office of Special
         Education and
         Rehabilitative Services:
          Rehabilitation services        2,400         2,482    2,533             2,389         2,258         2,515
           and disability research
      Department of Health and
       Human Services:
        Administration for
         Children and Families:
          Job opportunities and     ...........  ............  ............           4             4             3
           basic skills training
           program................
          Promoting safe and               300           305      305               258           281           284
           stable families........
          Social services block          1,725         1,700    1,700             1,852         1,803         1,793
           grant..................
      Department of Labor:
        Employment and Training
         Administration:
          Training and employment   ...........  ............    -138        ...........  ............           -4
           services...............
          Welfare to work jobs....  ...........  ............  ............         659           491           120
          State unemployment        ...........  ............     138        ...........  ............           84
           insurance and
           employment service
           operations.............
          Federal unemployment             132           132      132               141           131           132
           benefits and allowances
                                   ---------------------------------------------------------------------------------
          Total, mandatory........       4,557         4,619    4,670             5,303         4,968         4,927
                                   ---------------------------------------------------------------------------------
            Total, education,           44,151        51,935   53,800            40,138        45,932        51,560
             training, employment,
             and social services
             \1\..................
                                   =================================================================================
                HEALTH
    Discretionary:
      Department of Agriculture:
        Food Safety and Inspection
         Service:
          Salaries and expenses...          47            43       43                43            43            43
      Department of Health and
       Human Services:
        Food and Drug
         Administration:
          Salaries and expenses...           1             1        1                 1             1             1
        Health Resources and
         Services Administration:
          Health resources and           2,218         2,538    2,499             1,820         2,283         2,492
           services...............
        Centers for Disease
         Control and Prevention:
          Disease control,               2,536         2,660    2,496             2,106         2,356         2,745
           research, and training
           \1\....................
        Substance Abuse and Mental
         Health Services
         Administration:
          Substance abuse and            2,156         2,289    2,307             2,098         2,229         2,234
           mental health services.
      Department of Labor:
        Occupational Safety and
         Health Administration:
          Salaries and expenses...          88            90       90                88            90            90
        Mine Safety and Health
         Administration:
          Salaries and expenses...           8             8        8                 8             8             8
                                   ---------------------------------------------------------------------------------

    [[Page 251]]

          Total, discretionary \1\       7,054         7,629    7,444             6,164         7,010         7,613
                                   =================================================================================
    Mandatory:
      Department of Health and
       Human Services:
        Centers for Medicare and
         Medicaid Services:
          Grants to States for         129,504       144,816   160,070          129,434       144,926       160,070
           medicaid...............
          State children's health        6,283         3,115    3,175             3,699         3,689         4,322
           insurance fund.........
          State grants and                  62            67       72                 2            18            30
           demonstrations.........
                                   ---------------------------------------------------------------------------------
          Total, mandatory........     135,849       147,998   163,317          133,135       148,633       164,422
                                   ---------------------------------------------------------------------------------
            Total, health \1\.....     142,903       155,627   170,761          139,299       155,643       172,035
                                   =================================================================================
            INCOME SECURITY
    Discretionary:
      Department of Agriculture:
        Food and Nutrition
         Service:
          Food donations programs.         151           151        1               134           150            45
          Commodity assistance             140           150      145               136           159           147
           program................
          Special supplemental           4,044         4,387    4,751             4,085         4,426         4,727
           nutrition program for
           women, infants, and
           children (WIC) \1\.....
          Child nutrition programs          13             7        7                 7             5             5
      Department of Health and
       Human Services:
        Administration for
         Children and Families:
          Low income home energy         2,000         2,000    1,700             2,161         1,830         1,692
           assistance.............
          Refugee and entrant              324           353      344               345           351           385
           assistance.............
          Payments to States for         1,993         2,093    2,093             1,369         1,910         2,055
           the child care and
           development block grant
          Payments to States for    ...........  ............      60        ...........  ............            9
           foster care and
           adoption assistance....
      Department of Housing and
       Urban Development:
        Public and Indian Housing
         Programs:
          Public housing operating       3,235         3,495    3,530             3,137         3,385         3,458
           fund...................
          Drug elimination grants          309           -11   ............         309           312           247
           for low-income housing.
          Revitalization of                574           574      574               487           552           608
           severely distressed
           public housing (HOPE
           VI)....................
          Native Hawaiian Housing   ...........  ............      10        ...........  ............            1
           Block Grant............
          Public housing capital         2,993         2,843    2,426             3,550         3,656         3,553
           fund...................
          Native American housing          649           649      647               684           711           740
           block grant............
          Housing certificate fund       8,798        10,618   12,156             9,530        10,130        10,453
        Community Planning and
         Development:
          Homeless assistance            1,023         1,123    1,130               965         1,062         1,199
           grants.................
          Home investment                1,796         1,846    2,084             1,424         1,551         1,600
           partnership program....
          Youthbuild program......  ...........  ............  ............  ...........            1   ............
          Emergency food and        ...........  ............     153        ...........  ............          153
           shelter program........
          Housing opportunities            257           277      292               241           250           260
           for persons with AIDS..
          Rural housing and                 25            25   ............          17            25            25
           economic development...
        Housing Programs:
          Homeownership and                 -3   ............  ............          21            25             1
           opportunity for people
           everywhere grants (HOPE
           grants)................
          Housing for special              994         1,024    1,024               774           847           885
           populations............
      Department of Labor:
        Employment and Training
         Administration:
          State unemployment                 4             4   ............  ...........            8   ............
           insurance and
           employment service
           operations.............
          Unemployment trust fund.       2,439         2,793    2,734             2,364         2,793         2,734
      Federal Emergency Management
       Agency:
        Emergency food and shelter         140           140   ............         140           140   ............
         program..................
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\      31,898        34,541   35,861            31,880        34,279        34,982
                                   =================================================================================
    Mandatory:
      Department of Agriculture:
        Agricultural Marketing
         Service:
          Funds for strengthening          717           888      640               776           696           640
           markets, income, and
           supply (section 32)....
        Food and Nutrition
         Service:
          Food stamp program......       3,874         3,899    3,698             3,664         3,833         3,900
          Child nutrition programs       9,466         9,932   10,407             9,409        10,167        10,665
      Department of Health and
       Human Services:
        Administration for
         Children and Families:
          Payments to States for         3,517         3,908    3,978             3,706         4,018         4,074
           child support
           enforcement and family
           support programs.......
          Contingency fund........  ...........  ............   2,000        ...........  ............           45

    [[Page 252]]

          Payments to States for         6,401         6,622    6,609             5,710         6,098         6,422
           foster care and
           adoption assistance....
          Child care entitlement         2,565         2,710    2,710             2,336         2,529         2,730
           to States..............
          Temporary assistance for      16,689        16,689   17,008            18,583        18,334        19,354
           needy families.........
                                   ---------------------------------------------------------------------------------
          Total, mandatory........      43,229        44,648   47,050            44,184        45,675        47,830
                                   ---------------------------------------------------------------------------------
            Total, income security      75,127        79,189   82,911            76,064        79,954        82,812
             \1\..................
                                   =================================================================================
            SOCIAL SECURITY
    Discretionary:
      Social Security
       Administration:
        Federal disability                   4            14       16        ...........           11            15
         insurance trust fund.....
                                   ---------------------------------------------------------------------------------
          Total, discretionary....           4            14       16        ...........           11            15
                                   ---------------------------------------------------------------------------------
            Total, social security           4            14       16        ...........           11            15
                                   =================================================================================
    VETERANS BENEFITS AND SERVICES
    Discretionary:
      Department of Veterans
       Affairs:
        Veterans Health
         Administration:
          Medical care............         328           367      406               328           367           406
        Construction:
          Grants for construction          100           100      100                60            91            95
           of State extended care
           facilities.............
          Grants for the                    25            25       32                17            21            25
           construction of State
           veterans cemeteries....
                                   ---------------------------------------------------------------------------------
          Total, discretionary....         453           492      538               405           479           526
                                   ---------------------------------------------------------------------------------
            Total, veterans                453           492      538               405           479           526
             benefits and services
                                   =================================================================================
       ADMINISTRATION OF JUSTICE
    Discretionary:
      Department of Health and
       Human Services:
        Administration for
         Children and Families:
          Violent crime reduction   ...........  ............  ............          84            25             4
           programs...............
      Department of Housing and
       Urban Development:
        Fair Housing and Equal
         Opportunity:
          Fair housing activities.          46            46       46                39            37            46
      Department of Justice:
        Office of Justice
         Programs:
          Justice assistance \1\..         580         1,025      443               290           643         1,041
          State and local law            2,907         2,636    1,537               585         1,706         3,906
           enforcement assistance
           \1\....................
          Juvenile justice                 300           318      263               263           230           423
           programs...............
          Community oriented             1,040         1,051    1,382             1,356         1,057         1,015
           policing services......
          Violent crime reduction   ...........  ............  ............       3,092   ............  ............
           programs, State and
           local law enforcement
           assistance.............
      Executive Office of the
       President:
        Emergency response fund            710   ............  ............  ...........  ............  ............
         (primarily mass transit)
         \1\......................
      Equal Employment Opportunity
       Commission:
        Salaries and expenses.....          30            30       30                30            30            30
      Federal Drug Control
       Programs:
        High-intensity drug                171           226      206               136           182           218
         trafficking areas program
         \1\......................
      State Justice Institute:
        State Justice Institute:             7             3   ............           7             2   ............
         salaries and expenses....
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\       5,791         5,335    3,907             5,882         3,912         6,683
                                   =================================================================================
    Mandatory:
      Department of Justice:
        Legal Activities and U.S.
         Marshals:
          Assets forfeiture fund..         228           203      215               200           214           190
        Office of Justice
         Programs:
          Crime victims fund......         484           558      592               437           450           668
      Department of the Treasury:
        Departmental Offices:
          Treasury forfeiture fund          94            88       88                94            88            88
                                   ---------------------------------------------------------------------------------

    [[Page 253]]

          Total, mandatory........         806           849      895               731           752           946
                                   ---------------------------------------------------------------------------------
            Total, administration        6,597         6,184    4,802             6,613         4,664         7,629
             of justice \1\.......
                                   =================================================================================
          GENERAL GOVERNMENT
    Discretionary:
      Department of the Interior:
        Bureau of Land Management:
          Payments in lieu of              199           210      165               197           210           165
           taxes..................
        Insular Affairs:
          Trust Territory of the    ...........  ............  ............           1             2             2
           Pacific Islands........
      Department of Labor:
        Employment and Training
         Administration:
          Workers compensation      ...........          175   ............  ...........          140            35
           programs...............
      Department of the Treasury:
        Internal Revenue Service:
          Processing, assistance,           10            11       11                10            11            11
           and management.........
      District of Columbia:
        District of Columbia
         Courts:
          Federal payment to the           105           112      159                95           112           154
           District of Columbia
           courts.................
          Defender services in              34            34       32                28            34            32
           District of Columbia
           courts.................
          Crime victims                     18   ............  ............  ...........           18   ............
           compensation fund......
          Federal payment for       ...........           24   ............  ...........           21             3
           family court act.......
        District of Columbia
         Corrections:
          Payment to the District          134            30   ............         144            69   ............
           of Columbia corrections
           trustee, operations....
        District of Columbia
         General and Special
         Payments:
          Federal support for               49            31        1                22            56             1
           economic development
           and management reforms
           in the District........
          Federal payment for       ...........          216       15        ...........          216            15
           emergency planning and
           security cost in the
           District of Columbia
           \1\....................
                                   ---------------------------------------------------------------------------------
          Total, discretionary \1\         549           843      383               497           889           418
                                   =================================================================================
    Mandatory:
      Department of Agriculture:
        Forest Service:
          Forest Service permanent         322           393      398               200           393           398
           appropriations.........
      Department of Energy:
        Energy Programs:
          Payments to States under           3             3        3                 3             3             3
           Federal Power Act......
      Department of the Interior:
        Bureau of Land Management:
          Miscellaneous permanent           13           114      115                 9           108           115
           payment accounts.......
        Minerals Management
         Service:
          Mineral leasing and            1,045           666      670             1,045           666           670
           associated payments....
        United States Fish and
         Wildlife Service:
          National wildlife refuge          17            21       21                18            21            21
           fund...................
        Insular Affairs:
          Assistance to                     78            79       70                87            71            78
           territories............
          Payments to the United           106           106      106               105           106           106
           States territories,
           fiscal assistance......
      Department of the Treasury:
        Bureau of Alcohol, Tobacco
         and Firearms:
          Internal revenue                 334           246      235               334           246           235
           collections for Puerto
           Rico...................
        United States Customs
         Service:
          Refunds, transfers, and           90           105      107                90           105           107
           expenses of operation,
           Puerto Rico............
      Corps of Engineers--Civil
       Works:
        Permanent appropriations..  ...........            8        8        ...........            8             8
                                   ---------------------------------------------------------------------------------
          Total, mandatory........       2,008         1,741    1,733             1,891         1,727         1,741
                                   ---------------------------------------------------------------------------------
            Total, general               2,557         2,584    2,116             2,388         2,616         2,159
             government \1\.......
                                   =================================================================================
              Total, Grants.......     334,697       363,653   375,392          317,250       346,462       376,419
                Discretionary.....     112,009       124,735   122,410          131,067       143,651       155,427
                Mandatory.........     222,688       238,918   252,982          186,183       202,811       220,992
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes funding for the Emergency Response Fund enacted in response to the events of September 11, 2001.
      For additional information on this funding, see the 2003 Budget volume.