A primary objective of the Reagan Administration is to transfer the responsibility for social service and community development programs from the federal government to the state or local level. Accordingly, since 1981, the administration of a considerable number of programs has shifted from Washington to state capitals. A significant component of one of the Department of Housing and Urban Development's (HUD) largest programs, the Small Cities Community Development Block Grant (CDBG), is now administered by many state governments, including North Carolina. This transfer of control represents a significant challenge to the State and its ability to manage a substantial sum of money in accordance with federal and State goals. A review of the State's regulations and the types of funded activities provides some preliminary insights to North Carolina's response to this challenge.