The federal government gave out grants to state and local governments totaling more than $628 billion last year, according to the Congressional Research Service. Why wouldn’t states and local governments take grants from the federal government? Leaving aside the argument that the money the federal government gives away came from taxpayers in the first place, aren’t federal grants “free” money? A closer, more transparent look at federal grants and the impact they have on state and local budgets will show that the “free” money isn’t so free after all.

Federal grants are typically intended to supplement state and local government spending rather than take the place of some state and local spending. Thus receiving federal dollars does not generally result in less spending by state and local governments. This is known as the flypaper effect. Additionally, federal grants often come with strings attached, or conditions that state and local governments must meet, in order to receive federal dollars. The Congressional Budget Office writes that these “conditions may be central to the program at hand, such as the requirements that school districts must meet to qualify for federal grants under No Child Left Behind; or they may have little direct bearing on the grant program, such as the requirement that, in order to receive highway funding, a state must set a minimum drinking age of 21.”

A prime example of local governments losing control of their own programs once they accept federal funds was highlighted in a Public Interest Institute policy study earlier this year. As Deb Thornton wrote in The Nanny State Is Expanding – And Private-Property Rights Are Decreasing, “Dubuque is being required to alter their Section 8 low-income housing standards to not focus on the local needy citizens, but instead to attract and recruit new low-income people from areas outside of Iowa.”

Just what is the impact on state and local government budgets from accepting federal grants? Eric Fruits, President and Chief Economist at Economics International Corp. and adjunct professor of economics at Portland State University, studied the period from 1972 to 2012 and, controlling for state-by-state differences in economic and demographic factors, has found that across states as a group, each dollar of additional federal grants to states is associated with a total increase of 82 cents in new state and local taxes.

When accepting a federal grant, state and local governments, and taxpayers, need to realize that grant funds are not just “free” money granted by the federal government. Elected officials and taxpayers must keep in mind that there are usually strings attached to the federal grants, such as those that require matching funds from the state or local government or maintenance of effort requirements, which are likely to lead to additional spending at the state or local level. We need to make sure that the benefits from accepting federal grants are worth the extra spending, and thus the extra tax dollars needed from taxpayers that will result from accepting federal grants.

The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.

Amy K. Frantz is vice president of the Public Interest Institute in Mount Pleasant.