Under the intergovernmental aid system, federal dollars are funneled to State and local governments for their use in supporting programs which complement national objectives. State and local governments participate in the decision-making and expenditure processes of the intergovernmental aid system. Upon acceptance of federal funds, however, State and local governments are also required to comply with numerous conditions and requirements which accompany the funds.

The expansion of federal aid to Virginia during the past ten years has paralleled national trends. According to U.S. Treasury figures, federal intergovernmental aid to states and localities increased by approximately 300 percent, from $20 billion in 1969 to almost $80 billion in 1978. Virginia's receipt of intergovernmental aid funds increased at almost exactly the same rate, rising from $370 million to $1.5 billion during the same period.

The growing dependence of state agencies and programs on federal funds has caused concern in the legislatures of most states. Of foremost concern is the degree to which the flow of federal funds has preempted the legislature's prerogative to review programs and appropriate revenues. In some states federal funds have remained outside the appropriations process. In other states, including Virginia, only a portion of federal fund receipts and expenditures undergo legislative review.