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Changes in Federal Aid to State and Local Governments

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The Bush Administration's first budget not only proposes large tax cuts, it also provides a new set of spending priorities both in terms of the level and the composition of spending. For instance, the Bush proposal includes a 7.6% reduction in overall domestic discretionary spending--the non-defense programs funded through annual appropriations--in fiscal year 2011, compared to inflation-adjusted per capita spending this year (Chow and Mishel 2001). This 7.6% "cut" in domestic spending does not take into account the likely increase in defense spending, further business and other tax cuts, and the continuation of several tax credits and payments to farmers that will leave even less room for domestic spending (see Greenstein 2001).

This report analyzes the effect of the Bush Administration's budget proposal on federal discretionary grant-in-aid programs provided to state and local governments. These programs are projected to be cut by 6.9% in FY2002 and by 11.2% in FY2011. Spending reductions in FY2002, relative to current services (as measured by the baseline), range from 5.2% in Arizona and 5.6% in Colorado to 12.2% in Michigan and 15.7% in Arkansas (all data are available online at

More specifically, this report provides data on proposed changes in budget authority (hereafter referred to as "spending") of federal aid to state and local governments relative to a baseline for fiscal years 2002 and 2011. It covers 192 programs in the category of discretionary spending with a total cost of $122 billion in FY2001. This spending represents about 87% of total discretionary federal spending that takes the form of aid to state and local governments: it also represents about 38% of all federal nondefense discretionary spending and roughly 10% of total spending by state and local governments.