Federal block grants to states implemented under the Reagan administration were designed to shift governmental responsibility to state and local levels. Focusing on the impact of block grants on community mental health centers, the authors consider whether states have the revenue and managerial capacity to administer block grant programs and whether they are willing to address equity issues related to access to services for low-income citizens. They report data from 36 centers in eight states showing that a majority are now receiving lower levels of federalfunding and that many have reduced staffing and services as a result. To counteract the loss offederal funds, centers have increased fees and have taken steps to develop services geared toward the private sector. The authors discuss the effect of such changes on the centers and the implications for the centers' lowincome clientele.