THE PROGRAM IS EVALUATED IN RELATION TO THE GOALS SET FORTH BY ITS PROPONENTS, AND THE GOALS THEMSELVES ARE ANALYZED IN TERMS OF THE MOST EFFICIENT USE OF SOCIETY'S SCARCE RESOURCES. LITERATURE ON THE ECONOMICS OF CRIME IS REVIEWED AND RELATED TO PUNISHMENT AND DETERRENCE. RESEARCH SUPPORTING THE CONTEMPORARY SHIFT TOWARD COMMUNITY TREATMENT AND AWAY FROM PENAL INSTITUTIONS AS THE APPROPRIATE MODE OF OFFENDER TREATMENT IS SUMMARIZED. FOLLOWING AN OUTLINE OF THE HISTORY AND EVENTS LEADING UP TO THE LEGISLATION AUTHORIZING THE SUBSIDY PROGRAM, THE FORMAL ANALYSIS AND EVALUATION IS INITIATED, WITH ATTENTION TO A NUMBER OF IMPLICIT AND EXPLICIT CLAIMS PUT FORTH BY ITS PROPONENTS. THE TWO MAJOR CLAIMS ARE THE CLAIM OF EQUAL SECURITY, WHICH ASSERTS THAT THE PROGRAM COULD BE INTRODUCED WITHOUT INCREASING THE CRIMINAL DAMAGE INFLICTED ON THE RESIDENTS OF THE PARTICIPATING COMMUNITY; AND THE EFFICACY CLAIM WHICH STATES THAT THE PAYMENT OF SUBSIDIES IS NECESSARY TO ACHIEVE EACH OF THE DIVERSIONS ATTRIBUTED TO THE PROGRAM. THE EFFICIENCY CLAIM, WHICH ASSERTS THAT THE SUBSIDY PROGRAM WILL INCREASE THE ECONOMIC EFFICIENCY OF THE DELIVERY OF CORRECTIONAL SERVICES, IS EVALUATED TO PREPARE ALTERNATIVE ESTIMATES OF THE BUDGETARY SAVINGS OR COSTS ATTRIBUTABLE TO THE PROGRAM. INSIGHTS INTO PERFORMANCE GRANT-IN-AID PROGRAMS GAINED FROM THE DETAILED EVALUATION ARE DISCUSSED, AND IT IS CONCLUDED THAT PERFORMANCE GRANT-INAID CAN BE SUCCESSFUL IN INDUCING BEHAVIORAL CHANGES IN THE ACTIONS OF THE RECEIVING LOCAL GOVERNMENT AND THAT THE PROBATION SUBSIDY PROGRAM RESULTED IN A NET REDUCTION IN COMMITMENT RATES -- A REDUCTION THAT CAN BE ATTRIBUTED TO THE INCENTIVE EFFECTS OF THE PERFORMANCE GRANT-IN-AID STRUCTURE OF THE PROGRAM. A BIBLIIOGRAPHY AND TABULAR AND GRAPHIC DATA ARE PROVIDED. AMENDMENTS TO THE WELFARE AND INSTITUTIONS CODE OF THE STATE OF CALIFORNIA ARE APPENDED. (KBL)