What are state and local grants?
Federal grants to state and local governments can leverage federal policies to reduce greenhouse gas (GHG) emissions, remove carbon from the atmosphere, or adapt to climate change into policy arenas typically controlled at the state or local level. These grants can be an attractive alternative to federal investment directly in individual projects in cases where state or local governments have greater expertise in selecting and overseeing projects, or where the federal government wishes to leverage state and local funding to achieve greater impact. For instance, grants could support management of state- and locally-owned lands to optimize land-based carbon removal or climate resilience. The federal government could also use grants to direct resources toward state and local policy tools, such as green growth incentives to limit forest clearing or property tax breaks for low-carbon building practices. In addition to supporting federal climate policy objectives, grants can also help resource-constrained state and local governments meet their own climate change goals.
How do state and local grants work?
Congress can specify the scope and type of a state and local grant program and designate which federal agency will administer the grants. Different types of grants allow varying levels of discretion for the administering federal agency to determine how grants are distributed and for state or local recipients to choose how the funds are used.
Categorical grants impose the greatest restrictions on grant recipients, as funds are tied to a specific congressional program and limited to a narrowly defined set of eligible activities. Most categorical grants give the administering agency wide latitude to select recipients based on a competitive application process, though Congress can also prescribe a formula or cost-reimbursement function to determine funding allocations. Categorical grants often have extensive conditions attached around planning, project selection, fiscal management, and grant performance, which translates to higher administrative cost. These grants may be appropriate for national climate programs that require states or localities to implement specific activities set out in legislation.
Block grants offer grant recipients somewhat more freedom in how they spend grant funds. Block grants are still tied to a specific congressional program, but do not limit the activities eligible for funding as long as they broadly support the program’s objectives, and come with fewer administrative conditions than categorical grants. Grant allocation is typically prescribed by a formula set out in legislation. Block grants are likely to be preferable for climate programs that allow for more flexible implementation strategies, especially if grants are funding services typically provided under state or local jurisdiction or if national objectives for the grant program broadly align with state and local objectives.
Block grants have in the past supported emissions reductions through energy efficiency and conservation measures. State and local grants have not previously been used to finance carbon removal or climate adaptation, though either categorical grants or block grants could be appropriate tools for these purposes depending on the nature of the policy. For either mechanism, using selection criteria that approximate the potential of a given state or locality to reduce emissions or remove carbon through a specific practice is likely to result in the greatest climate benefits for the grant program overall. For instance, a reforestation grant program could award grants by formula based on the area of suitable historically forested land in a state or locality, or select projects that propose to restore the greatest area of native forest.
State and local grant programs can enhance accountability and track their cost-effectiveness by establishing a clear process to evaluate issued grants against the program objectives. Metrics to be used in the evaluation process—for instance, tons of carbon removed, megawatt-hours of energy saved, or acres of forest restored—must then be collected as part of the grant reporting requirements. The results of program evaluation could inform future changes to the program funding level or, for competitively-awarded categorical grants, to grant distribution.
Key design considerations
Should the federal government issue categorical grants or block grants?
Should the administering federal agency distribute grant funds by selecting from a competitive application pool or according to a predetermined formula? What criteria should be used to select applications or set the allocation formula?
What reporting metrics will be required from grant recipients? How will grants be evaluated? Will there be an established process to adjust future grant funding based on these evaluations?
U.S. experience with state and local grants
The federal government awarded $750 billion in state and local grants in 2019, with categorical grants making up the large majority of funding. These grants made up 16.5% of the federal budget and accounted for about a quarter of the total revenues for state and local governments. State and local grants as a percentage of the federal budget have grown by 50 percent since 1990.
More than 60% of the federal government’s 2019 grant funding was dedicated to the health sector, primarily through Medicaid. The largest climate-related state and local grant program was for urban mass transportation, which received $10.3 billion. The U.S. Environmental Protection Agency administers other, smaller grant programs related to air quality and climate change, among other goals.
From 2009 to 2015, the U.S. Department of Energy distributed $3.2 billion to states and localities through the Energy Efficiency and Conservation Block Grant (EECBG) Program as part of the American Recovery and Reinvestment Act (ARRA). An independent evaluation of that program found that the EECBG avoided over 25 million metric tons of CO2, saved consumers a cumulative $5.2 billion on energy bills, and created 63,000 new jobs.
In 2019, the Climate Stewardship Act proposed creating a new categorical grant program to accelerate natural carbon removal on state-owned, locally-owned, tribal, and nonprofit-owned lands. The “Reforest America Grant Program,” if enacted, would distribute sufficient grant funding to plant 250 million trees per year by 2027.
- Congressional Research Service, “Block Grants: Perspectives and Controversies,” 2020, https://fas.org/sgp/crs/misc/R40486.pdf
- Congressional Research Service, “Federal Grants to State and Local Governments: A Historical Perspective on Contemporary Issues,” 2019, https://fas.org/sgp/crs/misc/R40638.pdf
- Department of Energy, “Energy Efficiency and Conservation Block Grant Program National Evaluation: Summary of Results,” 2015, https://www.energy.gov/sites/prod/files/2015/10/f27/EECBG%20National%20Evaluation%20Fact%20Sheet.pdf
- World Resources Institute, “Restoring Trees to the Landscape: Creating ‘Shovel-Ready’ Jobs Across the United States,” 2020, https://www.wri.org/publication/restoring-trees-landscape-creating-shovel-ready-jobs-across-united-states