Federal Intergovernmental Grants: The US Experience

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Federal Intergovernmental Grants The US
Experience

• Paul L.Posner
• George Mason University

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Overview of U.S. Federal System

• Federal Government
• 50 States
• 3034 Counties
• 35,993 local general purpose govts.
• 48,885 special purpose local govts

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Constitutional Framework

• Federalism a Vital Part of Checks and Balances
• Separated institutions sharing powers
• Encourage democratic engagement
• Dual Federalism Concept
• Enumerated powers for national govt
• Implied powers
• 10th Amendment reserve clause for states
• Local Governments as creatures of states
• Concurrent Powers
• Supremacy Clause

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Spending as Share of GDP
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Federal Revenue Sources
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Federal Grants as share of state-local revenues
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Evolution of Models of Federalism

• Dual Federalism
• Cooperative Federalism
• Coercive Federalism

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Centralizing Forces

• National and global economy
• Shifting nature of political incentives
• Growth of more competitive national media
• Interest group activism
• Collapsing constraints on the federal role
• Chronic federal fiscal pressures
• Eclipse of federalism as a primary value

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Federal Civilian Employment and Outlays (Fiscal
Years 1950 2006)
Billions of FY 2000 Dollars
Thousands of Civilian Employees
Note Executive branch civilian employees
excluding postal service. Source Office of
Management and Budget.
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The True Size of Government(Fiscal Years 1990 -
2005)
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TOOLS OF GOVERNMENT

• DIRECT GOVERNMENT
• GRANTS
• LOANS/GUARANTEES
• TAX EXPENDITURES
• INSURANCE
• PRIVATIZATIONS
• REGULATION

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Government
Non-Government
Actors
State/Local Contractors
Private Individuals
Federal Contractors
Agency Partnerships
Govt Corporations
Management
Executive Agencies
State Local
Non-Profits
Faith-Based
Foreign
GSEs
Performance Management
Tools
Human Capital
Direct Services Grant-in-Aid Leases Procurement
Contracts Transfer Payments to Individuals Governm
ent Credit Insurance
Budgeting
Financial Management
Spend
Information Technology Management
Acquisitions Management
Revenue
Corrective Taxes Fees Tax Expenditures User
Fees Charges Vouchers
Regulate
Social Economic Regulation Permit
Trading Information Training Advise
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Federal Grants Percent of Federal and
State/Local Spending
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Federal Grants to State and Local Governments

• Categorical Over 700 programs
• Block Grants 15 programs
• General purpose assistance 1 temporary program
• Tax expenditures
• Deductibility for state and local taxes
• Tax exemption for state and local bonds

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Grant Type Examples
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Federal First Responder Grant Programs (As of
2003)
Department of Homeland Security
Department of Justice
Department of Health and Human Services
Emergency Preparedness And Response (FEMA)
Border and Transportation Security (ODP)
Office of Justice Programs
Office of Community Policing Services
Center for Disease Control and Prevention
Health Resources And Services Administration
State
City/County
Law Enforcement
Fire
Emergency Medical Service
Public Health/ Hospitals
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Trends in Federal Grants to State and Local
Governments (constant dollars)
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Tools of Regulatory Federalism

• Direct order mandates
• Program Specific Grant Conditions
• Crosscutting Requirements
• Crossover Sanctions
• Preemptions
• Total
• Partial

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Number of Federal Preemption Statutes Enacted
per Decade
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Unique Accountability Challenges

• Accountability to multiple constituencies
• Multiple actors empowered to bargain
• Third parties enjoy leverage
• Political resources
• Voluntary participation
• Monopolies over beneficiaries
• Information asymmetries
• Complex implementation chains

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Unique Performance Problems

• Federal perspective
• Goal diversion
• Fiscal windfalls 68 substitution
• Moral hazards
• Less public transparency too many hands
• State and local perspectives
• Distortion of priorities
• Conscription of authority
• Loss of flexibility to adapt to unique needs

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Medicaid as a Share of State Spending Over the
Next 10 Years
After 1 year
After 5 years
After 10 years
Note Assuming Current Growth Rate for Medicaid
and Current Average Growth for All Other
Categories.
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New Dimensions for Performance and Accountability

• Tool selection are tools selected to reinforce
  each other or do they work at cross purposes?
• Tool design are incentives built in to
  encourage ownership and accountability by third
  parties?
• Third party networks are the incentives and
  interests aligned?
• Oversight do federal agencies have the capacity
  and authority to effectively oversee the variety
  of third parties?
• Public Transparency Are roles and
  responsibility clearly delineated?

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Key Design Features Formula vs. Project Grants

• Formula Grants
• Funds recurrent, ongoing activities
• Grantee participation is broad-based
• Funding needs amenable to standardized
  measurement
• Discretionary Grants
• Limited in duration and scope
• Promote innovation/ Best Practices
• Funding needs not amenable to objective
  measurement

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Issues Of Formula Design Formula Elements

• Choosing appropriate formula factors
• Workloads
• Cost per workload unit
• Funding capacity

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Key Design Features Cost Sharing Policies

• Cost sharing policies determined by intended
  effect on grantee spending effort
• Leverage additional grantee spending
• Supplement grantee spending
• Substitute for grantee spending

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Strategies Tool Design

• Sanctions, incentives and rules
• Tension between participation and managerial
  incentives
• Managerial features
• Cost and risk sharing
• Performance incentives
• Auditing and internal control mandates

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Strategies Oversight

• Ex ante - contracts, project grants
• Ex post - tax expenditures, formula grants
• Delegation of oversight to third parties
• Single audit
• Police patrol vs. fire alarm
• Internalization of federal priorities
• Picket fence
• Client groups

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Multiple Roles in Grant Accountability

• Roles
• Grantors (political leaders and administrators)
  as regulators
• Grantees as regulated entity
• Public
• Neutrals (GAO, agency OIGs, courts, auditors,
  etc.)

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Accountability Provisions

• Financial Management
• Program Effectiveness
• Compliance/Quality Assurance

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Accountability Provisions Financial Management

• Expenditure reports
• Audit requirements
• MOE or matching requirements
• Earmarking provisions
• Penalties

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Accountability Provisions Program Effectiveness

• Performance goals and indicators
• Program evaluation
• Reporting requirements (outputs or outcomes)

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Accountability Provisions Compliance/Quality
Assurance

• Cross-cutting requirements
• Cross-over sanctions
• Complaint, grievance or appeal mechanisms

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Accountability Issues in Federal Grants Four
Phases
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Differential Federal Strategies
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Concerns with the Federal System

• Mismatch in assignment of responsibilities
• Horizontal inequities across governments
• Centralization of priorities and strategies
• Fragmentation and inefficiency in delivery
• Confused and conflicted accountability

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Approaches to Reform

• Reforming categorical grants
• Performance partnerships
• Block grants
• Sorting out responsibilities through turnbacks
• Limiting federal mandates and preemptions
• Collaborations across states for national, not
  federal, leadership

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Devolution and Block Grants

• States maturation make world safe for devolution
• Greater governance capacity
• Increased policy initiative
• Devolution attempts to shift accountability to
  state and local institutions
• National political institutions remain
  centralized
• Devolution is unstable and unsustainable

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Effects of Networks on Tool Evolution

• Federal Partnerial Devolved

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Current U.S. federal fiscal system is
unsustainable

• Major shifts in social and economic forces
  generating revenue pressures
• Globalization
• Advancing technologies
• Knowledge based economy
• Aging of population
• Structural fiscal imbalances

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State and Local Fiscal Challenges Add to the
Federal Governments Fiscal Challenge
Federal Surplus/Deficit
Combined Surplus/Deficit
Source Historical data from National Income and
Product Accounts, GAO Analysis Note Historical
data from 2000 2006, projections from 2007
2050 state and local balance measure is similar
to the federal unified budget measure. Federal
Simulation Assumptions Discretionary spending
grows with GDP after 2007. AMT exemption amount
is retained at the 2006 level through 2017 and
expiring tax provisions are extended. After
2017, revenue as a share of GDP returns to its
historical level of 18.3 percent of GDP plus
expected revenues from deferred taxes, i.e. taxes
on withdrawals from retirement accounts.
Medicare spending is based on the Trustees April
2007 projections adjusted for the Centers for
Medicare and Medicaid Services alternative
assumption that physician payments are not
reduced as specified under current law.