The provision of public mental health services is shifting increasingly from states to local areas. Yet state governments continue to bear financial responsibility for the majority of these services. One implication of this trend is that the success of state policies become dependent on a state's ability to influence the behavior of local areas. This paper discusses the different options states have in designing intergovernmental grant contracts with local areas, and describes likely impacts of the different strategies. These propositions are then tested using data from the Ohio state mental health system from 1989-1993. This study finds that the design of grants affects public expenditures, local revenue generation, and the mix of services provided at the local level.
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