Capacity‐building efforts hare been suggested ax one strategy to deal with what is increasingly considered a “crisis of competence” among American governments. The sense that things are not working as they should, that government is inefficient and ineffective, plagues all governments and is particularly evident in their intergovernmental relationships. From its vantage point in the intergovernmental system, to what extent can the federal government promote capacity building among its state and local government counterparts? And how relevant to the problems at hand are such efforts? This article examines the possibilities and limitations of a unique federal effort, the Grant Program of the Intergovernmental Personnel Act of 1970 (IPA). The intergovernmental system in which capacity‐building efforts are conducted is first reviewed. An explanation of the Intergovernmental Personnel Act Grant Program follows. Next, the possibilities and limitations of the IPA Grant Program capacity‐building efforts are examined in light of the program environment, its operating structure, and underlying values and assumptions. Finally, a recommendation is made to enhance Grant Program capacity‐building efforts by emphasizing more process‐based capacity assistance. As will be seen, experience with the Grant Program indicates that promotion of capacity building remains an el