Negotiating Conditionality: The Genesis of Federal Grant Programs in Australia, Canada, and the United States

Can provinces and states influence the conditions attached to federal grants? In federations such as Australia, Canada, and the United States, federal grants earmarked for specific purposes have been identified to be the main instruments used by federal governments to shape policies run by constituent units. There is a strong consensus in the literature on fiscal and dynamic federalism that the use of conditional grants thus leads to centralization since the federated entities lose autonomy. Constituent units’ influence on grant design mitigates the centralizing effect of conditional grants. Therefore, this paper examines the degree to which provinces and states have a say in the genesis of policy programs funded through earmarked grants in Australia, Canada, and the United States. It establishes whether such programs are initiated by the federal government or requested by constituent units. It examines whether they stimulate policy action on the constituent unit level or build on existing policies in the provinces or states. Moreover, the paper determines the degree to which policy objectives and funding levels are imposed or negotiated. This includes a closer look at intergovernmental negotiations and the institutional arenas that channel such negotiations, should they take place, as well as package deals to identify the actual say the constituent units might have when negotiating the conditions attached to federal grants. Whether they are confronted with take-it-or-leave-it offers – that provinces and states often cannot refuse because they need the money – tells us about the extent to which federal governments can make use of their spending power. Federal concessions in intergovernmental negotiations are indicative of constituent units’ success in avoiding the autonomy losses usually associated with conditionality. Finally, the paper identifies whether exit options such as waivers are available to the federated entities, which allow them to deviate from certain conditions attached to federal funding and give them more leeway. The paper compares the major policy programs funded through conditional grants in the areas of health care, education and infrastructure across three federations and over time. A composite indicator measuring the extent to which the constituent units shape the decisions on the conditions attached to federal grants, or fail to do so, is developed. Using set theory, the paper also identifies facilitators and impediments to constituent units’ influence on grant design. In measuring and explaining the extent to which federated entities can influence the establishment and major reforms of grant programs, the paper contributes to a rising research agenda, namely the study of the dynamics of multilevel systems.