The General Service Administration’s abuse of the taxpayer credit card in its cynically extravagant 2010 Las Vegas conference has drawn justified bipartisan outrage. But however instructive such discreet incidents of government waste are—illustrating the contempt with which some members of the federal bureaucracy view the taxpayer—they are a sideshow compared with a far larger fiscal sinkhole: the mundane practice of federal grant-making.

It’s bad enough that the Education Department, for example, spews out a constant flood of misguided regulations, which usually embody the view that schools and universities are bastions of petty-minded bigotry that only federal bureaucrats can check with their superior, enlightened wisdom. But alongside the regulations comes a more wasteful flood of grant programs—$250,000 here to California State University, Bakersfield, for minority science and math programs; another $250,000 there to Miami-Dade Community College for the same enterprise. And on and on. Whose tax dollars are going into those piddling grants—Montanans’? Or Californians’ and Floridians’? In which case, why did those California and Florida tax dollars have to go all the way to Washington, before they could magnanimously be returned to their source?

Every federal agency, of course, is engaged in the same shell game. Federal grant recipients appear to believe that they’ve received a windfall—that federal money is free money. Not true: it’s local money that trickles back after a huge cut is taken off the top for administrative costs. If the feds were doling out trillions of dollars that they had somehow collected from China, say, then there might be cause for thinking that federal grants added to the national or even local wealth. But no such extraterritorial source of federal money exists.

At best, federal grants could merely be break-even transactions nationwide. In fact, they’re always a net loss. The costs of collecting local tax dollars, sending them to Washington, distributing them among the various agencies, and then funneling them back to the locals who sent the money to Washington in the first place are enormous. The grant-making agency spends taxpayer-funded employee hours devising a grant program and complying with various administrative-procedure requirements for notice and other formalities. The locals then spend further taxpayer-funded employee hours scouring the Federal Register and other sources of grant programs to find money that they can apply for and writing up their grant application, complete with costly reams of paperwork. After selecting the grant recipients, the feds spend more employee hours monitoring the grants (or not), with more paperwork flowing back and forth between the locals and the feds. At every stage of the process, taxpayer dollars evaporate like raindrops on a desert mesa.

If there were systematic redistribution going on from rich localities to poor ones, there might be some arguable justification for the cumbersome loop of localities’ sending money to Washington, then begging on bended knee to get it back. But virtually every place receives federal grants, the wealthiest states—California, New Jersey, Connecticut, New York, and others—no less than Mississippi or West Virginia. In the Byzantine circuitry of local tax dollars reprocessed as federal grants, rich localities get their own money back as well as other states’ money. Case in point: job-training centers across the country are being starved of their federal cash, alleges the New York Times. Seattle has seven such federally funded centers. Seattle is not Biloxi. Can’t Seattle and Washington State residents fund their own job training (leaving aside the question of whether such training actually works) rather than siphoning off Texans’ tax dollars to do so?

Federal grant-making is the hook that Washington uses to gain control over local institutions, whether public or private. Universities and schools are in thrall to the Education Department’s absurd reading of Title IX law, for example, because of their consumption of federal (a.k.a. recycled local) dollars. If we could only pierce the fiction that federal money is a windfall from some outside source, perhaps we could unwind this senseless circuitry of local money. At best, however, conservatives advocate for the block-granting of federal funds—that is, removing some of the programmatic requirements on how “federal” money is spent, in order to give localities more discretion in how they spend “federal” money.

Conservatives have the wrong target. The focus should not be on the “block” part of the equation, but on the grant-making per se.


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