GAO 

United States Government Accountability Office

Report to Congressional Requesters

FORMULA GRANTS

Funding for the 

Largest Federal 

Assistance Programs 

Is Based on CensusRelated Data and 

Other Factors 

December 2009 

GAO-10-263 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2009

FORMULA GRANTS

Funding for the Largest Federal Assistance Programs

Is Based on Census-Related Data and Other Factors

Highlights of GAO-10-263, a report to 

congressional requesters 

Many federal assistance programs 

are funded by formula grants that 

have historically relied at least in 

part on population data from the 

decennial census and related data 

to allocate funds. In June 2009, the 

Census Bureau reported that in 

fiscal year 2007 the federal 

government obligated over $446 

billion through funding formulas 

that rely at least in part on census 

and related data. Funding for 

federal assistance programs 

continues to increase. 

 

GAO was asked to determine 

(1) how much the federal 

government obligates to the largest 

federal assistance programs based 

on the decennial census and 

related data, and how the Recovery 

Act changed that amount; and 

(2) what factors could affect the 

role of population in grant funding 

formulas. To answer these 

objectives, GAO identified the 10 

largest federal assistance programs 

in each of the fiscal years 2008 and 

2009 based on data from the 

President’s fiscal year 2010 budget. 

GAO reviewed statutes, agency 

reports, and other sources to 

obtain illustrative examples of how 

different factors could affect the 

role of population data in grant 

funding. 

GAO’s analysis showed that each of the 10 largest federal assistance programs 

in fiscal years 2008 and 2009 relied at least in part on the decennial census and 

related data—that is, data from surveys with designs that depend on the 

decennial census, or statistics, such as per capita income, that are derived 

from these data. For fiscal year 2008, this totaled about $334.9 billion, 

representing about 73 percent of total federal assistance. For fiscal year 2009, 

the estimated obligations of the 10 largest federal assistance programs totaled 

about $478.3 billion, representing about 84 percent of total federal assistance. 

This amount included about $122.7 billion funded by the Recovery Act and 

about $355.6 billion funded by other means. 

Fiscal Year 2009 Estimated Obligations for the 10 Largest Federal Assistance Programs and 

Portion of Estimated Amount Obligated Due to Recovery Act 

Dollars in billions 

Program 

Estimated amount 

obligated

Estimated 

portion from 

Recovery Act

Medicaid $266.6 $36.7

Highway Planning and Construction 54.1 13.4

State Fiscal Stabilization Fund—Education State Grants 39.7 39.7

Title I Grants to Local Education Agencies 24.5 10.0

Individuals with Disabilities Education Act Part B 22.8 11.3

Temporary Aid for Needy Families 17.1 5.0

Section 8 Housing Choice Vouchers 16.6 0.0

Community Development Block Grant 13.3 1.0

Federal Transit Formula Grants Programs 13.0 5.6

Children’s Health Insurance Program 10.6 0.0

Total $478.3 $122.7

Source: Office of Management and Budget (OMB), Analytical Perspectives, Budget of the United States Government, Fiscal Year 2010 

(May 2009), Table 8-4, Summary of Programs by Agency, Bureau, and Program and Table 8-6, Summary of Recovery Act Grants by 

Agency, Bureau, and Program. 

Note: Because the actual obligations for fiscal year 2009 are not yet available from OMB for each of 

these programs, we are reporting the estimated fiscal year 2009 obligations reported in the 

President’s Fiscal Year 2010 budget. 

Several factors can affect the role of population in grant funding formulas. 

When a formula includes variables in addition to total population, the role of 

population in the grant funding formula is less than if the formula relies solely 

on total population. All of the programs in GAO’s review included one or more 

grants with formulas containing variables other than total population, such as 

the level of transit service provided. In addition, other factors can modify the 

amount that a state or local entity would have otherwise received under the 

formula. These factors include (1) hold harmless provisions and caps; 

(2) small state minimums; and (3) funding floors and ceilings. With the 

application of these factors, grant funding may be affected less or entirely 

View GAO-10-263 or key components. unaffected by changes in population. 

For more information, contact Robert 

Goldenkoff at (202) 512-2757 or 

goldenkoffr@gao.gov. 
Page i GAO-10-263 

Contents 

Letter 1

Background 3 

The Federal Government Obligated an Estimated $478 Billion in 

Fiscal Year 2009 at Least in Part Based on Census and Related 

Data 5 

Several Factors Could Affect the Role of Population in Grant 

Funding Formulas 7 

Appendix I Objectives, Scope, and Methodology 13 

Appendix II Descriptions of the Largest Federal Assistance 

Programs 16 

Appendix III GAO Contact and Acknowledgments 19 

Related GAO Products 20 

Tables 

Table 1: Fiscal Year 2008 Obligations for the 10 Largest Federal 

Assistance Programs 6 

Table 2: Fiscal Year 2009 Estimated Obligations for the 10 Largest 

Federal Assistance Programs and Portion of Estimated 

Amount Obligated due to the Recovery Act 7 

 Formula Grants 
Abbreviations 

ACF Administration of Children and Families 

ACS American Community Survey 

CFDA Catalog of Federal Domestic Assistance Programs 

CHIP Children’s Health Insurance Program 

CMS Centers for Medicare & Medicaid Services 

CPS Current Population Survey 

CRS Congressional Research Service 

FMAP Federal Matching Assistance Percentage 

FMR Fair Market Rent 

IDEA Individuals with Disabilities Education Act 

LEA Local Educational Agency 

OMB Office of Management and Budget 

TANF Temporary Aid for Needy Families 

This is a work of the U.S. government and is not subject to copyright protection in the 

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necessary if you wish to reproduce this material separately. 

Page ii GAO-10-263 Formula Grants
Page 1 GAO-10-263 

 

United States Government Accountability Office

Washington, DC 20548 

 

December 15, 2009 

The Honorable Thomas Carper 

Chairman 

Subcommittee on Federal Financial Management, Government 

 Information, Federal Services, and International Security 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable William Lacy Clay 

Chairman 

Subcommittee on Information Policy, Census, and National Archives 

Committee on Oversight and Government Reform 

House of Representatives 

The Honorable Carolyn Maloney 

House of Representatives 

The federal government uses formula grants to determine funding 

amounts for many of the largest federal assistance programs. These 

programs provide funding for a variety of purposes, including health 

insurance for low income families and individuals, improvement of 

highway and public transportation systems, and special education 

programs. To determine funding amounts, grant formulas have historically 

relied at least in part on data from the decennial census and related data—

that is, data from surveys with designs that depend on the decennial 

census, or statistics derived from these data sources. More than 10 years 

ago, we reported that in fiscal year 1998 the federal government obligated 

about $162 billion through 22 of the largest federal assistance programs 

using formulas based at least in part on decennial census and related data.1

In June 2009, the Census Bureau reported that in fiscal year 2007 the 

federal government obligated over $446 billion through funding formulas 

that rely at least in part on census and related data.2

 Funding for federal 

1

GAO, Formula Grants: Effects of Adjusted Population Counts on Federal Funding to 

States, GAO/HEHS-99-69 (Washington, D.C.: Feb. 26, 1999). 

2

Blumerman, L. M. and P. M. Vidal. 2009. Uses of Population and Income Statistics in 

Federal Funds Distribution—With a Focus on Census Bureau Data. Governments 

Division Report Series, Research Report #2009-1. For that report, the authors identified 140 

programs that use population or income data or both as a factor in determining funding 

amounts or eligibility criteria. 

 Formula Grants
 

assistance programs continues to increase. Of the $580 billion in additional 

federal spending associated with the American Recovery and 

Reinvestment Act of 2009 (Recovery Act),3

 the federal government 

obligated an estimated $161 billion through federal grant programs for 

fiscal year 2009. 

This report responds to your request that we determine (1) how much the 

federal government obligates to the largest federal assistance programs 

based on the decennial census and related data, and how the Recovery Act 

changed that amount; and (2) what factors could affect the role of 

population in grant funding formulas. To answer our objectives, we 

identified 11 federal assistance programs representing the 10 largest 

programs in each of the fiscal years 2008 and 2009 based on the dollar 

amounts obligated reported in the President’s fiscal year 2010 budget, 

issued in May 2009, Office of Management and Budget (OMB), Analytical 

Perspectives, Budget of the United States Government, Fiscal Year 2010

(Fiscal Year 2010 budget).4

 We included the following programs in our 

review:5

• Children’s Health Insurance Program (CHIP); 

• Community Development Block Grant (CDBG) and Neighborhood 

Stabilization Program; 

• Education State Grants, State Fiscal Stabilization Fund (State Fiscal 

Stabilization Fund); 

• Federal Transit Formula Grants Programs; 

• Head Start; 

• Highway Planning and Construction; 

• Individuals with Disabilities Education Act (IDEA), Part B; 

• Medicaid; 

• Section 8 Housing Choice Vouchers; 

• Temporary Aid for Needy Families (TANF); and 

• Title I Grants to Local Education Agencies (Title I). 

 

3

Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

4

Because the actual obligations for fiscal year 2009 are not yet available from OMB for each 

of these programs, we are reporting the estimated fiscal year 2009 obligations reported in 

the President’s Fiscal Year 2010 budget. 

5

For purposes of this report, we refer to the programs as they are identified in the 

President’s Fiscal Year 2010 budget. Some of the programs listed comprise multiple federal 

assistance grants programs. 

Page 2 GAO-10-263 Formula Grants
 

For a description of each of these programs, see appendix II. To determine 

whether the programs’ funding relied on census and related data, we 

reviewed statutes, our prior work, the Catalog of Federal Domestic 

Assistance Programs (CFDA),6

 Congressional Research Service reports, 

and agency Web pages and reports related to each of the programs. We 

considered funding to be based on census or related data if any part of the 

funding formula(s) or eligibility requirements relied on these data sources. 

To determine what factors could affect the role of population in grant 

funding formulas, we reviewed our prior work (see the list of related GAO 

products at the end of this report) and other research on formula grants.7

(See appendix I for a more detailed discussion of our scope and 

methodology.) 

We conducted our work from June 2009 to December 2009 in accordance 

with all sections of GAO’s Quality Assurance Framework that are relevant 

to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions. 

Congress appropriates federal assistance grant funds to executive branch 

agencies that then use funding formulas to distribute federal assistance to 

states or local entities.8

 These funding formulas are typically established 

through statute and expressed as one or more equations containing one or 

more variables. Executive branch agencies also use formulas to determine 

the amount of federal matching grants for jointly funded federal assistance 

programs where the amount of the federal match varies among the states 

based upon the formula calculation. For example, Medicaid’s Federal 

Matching Assistance Percentage (FMAP) is determined through a statutory 

Background 

 

6

The General Services Administration and OMB’s CFDA (available at www.CFDA.gov) is a 

governmentwide compendium of federal programs, projects, and activities that provide 

assistance or benefits to the American public. 

7

National Research Council, Statistical Issues in Allocating Funds by Formula (Panel on 

Formula Allocations), Thomas A. Louis, Thomas B. Jabine, and Marisa A. Gerstein, editors, 

Committee on National Statistics, Division of Behavioral and Social Sciences and 

Education, the National Academies Press; Washington, DC: 2003. 

8

For purposes of this report, states include the District of Columbia. Local entities can 

include local governments, local education agencies, and entities under contract with the 

federal government. 

Page 3 GAO-10-263 Formula Grants
 

formula based on each state’s per capita income relative to U.S. per capita 

income.9

 Various statutory or administrative provisions can also modify 

the amount that would otherwise be determined under the formula. These 

provisions may be included to avoid disruptions that could be caused by 

year-to-year changes in funding, to cover fixed costs of a program, or for 

other reasons. 

Congress can use formula grants to target funds to achieve federal 

assistance program objectives by including specific variables in the 

formulas that relate to the programs’ objectives.10 For example, for a 

program intended to serve a specific segment of the population, the 

formula may contain variables that measure or identify the subset of the 

population. Therefore, the formula for a program designed to provide 

services for children in low income areas may contain variables that 

identify the total number of children living in poverty in a certain area. 

Historically, many formulas have relied at least in part on decennial census 

and related data as a source of these variables. The decennial census 

collects, among other things, information on whether a residence is owned 

or rented, as well as respondents’ sex, age, and race. To update decennial 

population counts, the Bureau’s Population Estimates Program produces 

population estimates for each year following the last published decennial 

census, as well as for past decennials, using administrative records such as 

birth and death certificates and federal tax returns. Census-related data 

stem from the decennial census and the Bureau’s population estimates and 

include (1) surveys with statistical samples designed to represent the 

entire population using data from the decennial census or its annual 

updates, and (2) statistics derived from decennial census data, its annual 

updates, or census-related surveys. 

Two of the census-related surveys produced by the Bureau include the 

American Community Survey (ACS) and the Current Population Survey 

(CPS). The ACS is an annual survey of about 3 million housing units that 

collects information about people and housing, including information 

previously collected during the decennial census. The CPS is a monthly 

 

9

Matching grants may also be based on a fixed percentage of the amount spent by the state. 

Highway Planning and Construction programs have matching grants where the federal 

share is based on a percentage of the total cost of the program. 

10Program objectives may not always be met by funding formulas and may be modified by 

provisions introduced in subsequent legislation. 

Page 4 GAO-10-263 Formula Grants
 

survey of about 50,000 households conducted by the Census Bureau for 

the Bureau of Labor Statistics and provides data on the labor force 

characteristics of the U.S. population. Supplemental questions also 

produce estimates on a variety of topics including school enrollment, 

income, previous work experience, health, employee benefits, and work 

schedules. 

Federal agencies use census data, annual updates, and surveys based on 

these data to produce other statistics used in federal assistance grant 

formulas. For example, the Bureau of Economic Analysis produces per 

capita income data—a derivative of decennial census data—by dividing 

personal income by population obtained from census population 

estimates. Per capita income is used to calculate Medicaid’s FMAP. 

Another derivative is Fair Market Rent (FMR) that the Department of 

Housing and Urban Development calculates and uses to determine 

payment standard amounts for the Section 8 Housing Choice Voucher 

Program. The FMR for a particular area is based on decennial census data 

or other surveys such as the ACS for the years between censuses. 

Our analysis showed that each of the 10 largest federal assistance 

programs in fiscal year 2008 and 2009 relied at least in part on decennial 

census and related data to determine funding. For fiscal year 2008, this 

totaled about $334.9 billion, representing about 73 percent of total federal 

assistance.11 We considered funding based on decennial census and related 

data if any part of the funding formula or eligibility requirements relied on 

these data sources.12 Table 1 shows the fiscal year 2008 obligations for the 

10 largest federal assistance programs in that year. 

The Federal 

Government 

Obligated an 

Estimated $478 

Billion in Fiscal Year 

2009 at Least in Part 

Based on Census and 

Related Data 

 

11The percentage of total federal assistance spending was based on the total amount of 

outlays for fiscal year 2008. 

12The Bureau’s June 2009 report on the uses of population and income statistics found that 

in fiscal year 2007, the federal government obligated over $446 billion through funding 

formulas that rely in part on census population or income data or both. For that report, the 

authors identified 140 programs that relied on these data. The authors used obligation 

amounts for fiscal year 2007 reported in the CFDA. 

Page 5 GAO-10-263 Formula Grants
 

Table 1: Fiscal Year 2008 Obligations for the 10 Largest Federal Assistance 

Programs 

Dollars in billions 

Program Amount obligated 

Medicaid $214.0

Highway Planning and Construction 37.4

TANF 17.0

Section 8 Housing Choice Vouchers 15.6

Title I Grants to Local Education Agencies 13.9

IDEA Part B 11.0

Federal Transit Formula Grants Programs 8.2

Head Start 6.9

CHIP 6.0

CDBG and Neighborhood Stabilization Program 4.9

Total $334.9

Source: OMB, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2010 (May 2009), Table 8-4, Summary of 

Programs by Agency, Bureau and Program. 

For fiscal year 2009, the estimated obligations of the 10 largest federal 

assistance programs totaled about $478.3 billion, representing about 84 

percent of total federal assistance.13 This amount included about $122.7 

billion funded by the Recovery Act and about $355.6 billion funded by 

other means. The 10 largest federal assistance programs in fiscal year 2009 

included a new program added by the Recovery Act—the State Fiscal 

Stabilization Fund.14 Table 2 shows the fiscal year 2009 estimated 

obligations for the 10 largest federal assistance programs and how much 

the Recovery Act increased that amount. 

 

13The percentage of total federal assistance spending was based on the total amount of 

outlays for fiscal year 2009. 

14With the addition of the State Fiscal Stabilization Fund–Education State Grants, Head 

Start was not among the largest federal assistance programs in fiscal year 2009. 

Page 6 GAO-10-263 Formula Grants
 

Table 2: Fiscal Year 2009 Estimated Obligations for the 10 Largest Federal 

Assistance Programs and Portion of Estimated Amount Obligated due to the 

Recovery Act 

Dollars in billions 

Program 

Estimated 

amount 

obligated 

Estimated portion 

from the Recovery 

Act

Medicaid $266.6 $36.7a

Highway Planning and Construction 54.1 13.4

State Fiscal Stabilization Fund–Education State 

Grants 

39.7b39.7b

Title I Grants to Local Education Agencies 24.5 10.0

IDEA Part B 22.8 11.3

TANF 17.1 5.0

Section 8 Housing Choice Vouchers 16.6 0.0

CDBG and Neighborhood Stabilization Program 13.3 1.0

Federal Transit Formula Grants Programs 13.0 5.6c

CHIP 10.6 0.0

Total $478.3 $122.7

Source: OMB, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2010 (May 2009), Table 8-4, Summary of 

Programs by Agency, Bureau and Program and Table 8-6, Summary of Recovery Act Grants by Agency, Bureau, and Program. 

Note: Because the actual obligations for fiscal year 2009 for each of these programs are not yet 

available from OMB, we are reporting the estimated fiscal year 2009 obligations reported in the 

President’s Fiscal Year 2010 budget. 

a

The amount shown may include small amounts of Medicaid increases from the Recovery Act not 

directly related to increased FMAPs. 

b

The amount shown only includes Education State Grants and does not include the Government 

Services part of the State Fiscal Stabilization Fund. 

c

The estimated obligations are spread across multiple Federal Transit Administration grant programs 

and may include funds not allocated by formula. 

Decennial census and related data play an important role in funding for 

the largest federal assistance programs. However, changes in population 

do not necessarily result in an increase or decrease in funding. Based on 

our prior work and related research on formula grants, we identified some 

of the factors that could affect the role of population grant formulas. We 

found that factors related to the formula equation(s) and those that modify 

the amount that a state or local entity would otherwise receive under the 

formula could affect the role of population in grant funding formulas. 

Further, the extent to which one particular factor can affect the role of 

population in grant funding varied across programs. Although at least one 

factor that could affect the role of population in grant funding formulas 

Several Factors Could 

Affect the Role of 

Population in Grant 

Funding Formulas 

Page 7 GAO-10-263 Formula Grants
 

was present in each program in our review, the number and combination 

of factors varied across programs.15 To illustrate how these factors can be 

used in formula grant funding, we selected examples from the federal 

assistance programs in our review. The examples presented below are 

illustrative and do not necessarily indicate the relative importance of a 

factor compared to the other factors present. 

Variables Other Than Total 

Population Can Affect Role 

of Population in Grant 

Funding Formulas 

All of the programs in our review included one or more grants with 

formulas containing variables other than total population. Obviously, 

absent other factors, funding based on these formulas will be affected less 

by changes in population than those that rely solely on total population. 

The State Fiscal Stabilization Fund formula is based on total population 

and a subset of total population—states’ shares of individuals aged 5 to 24 

relative to total population. The Federal Transit Program grants for 

urbanized areas with populations of 200,000 are based on total population 

and variables related to the level of transit service provided. TANF 

supplemental grants are awarded based on a formula with multiple 

variables.16 According to the Department of Health and Human Services’s 

Administration of Children and Families (ACF), which administers the 

program, supplemental grants are awarded to states with exceptionally 

high population growth in the early 1990s, historic welfare grants per poor 

person lower than 35 percent of the national average, or a combination of 

above average population growth and below average historic welfare 

grants per poor person. Medicaid’s FMAP is based on a 3-year average of a 

state’s per capita income relative to U.S. per capita income with per capita 

income defined as personal income divided by total population.17 The 

FMAP is affected by both changes in population and personal income. 

Because changes in population and personal income are not correlated, 

the affect of a population change may be diminished or increased by a 

change in personal income. Finally, because per capita is squared—that is, 

 

15We did not assess the extent to which the factors affected the particular programs in 

fiscal years 2008 and 2009. 

16TANF supplemental grants are one of the program’s four grant programs. 

17On February 25, 2009, Centers for Medicare & Medicaid Services (CMS) increased FMAP 

grant awards to states, and states may claim reimbursement for expenditures that occurred 

prior to the effective date of the Recovery Act. Generally, for fiscal year 2009 through the 

first quarter of fiscal year 2011, the increased FMAP, which is calculated on a quarterly 

basis, provides for: (1) the maintenance of states’ prior year FMAPs; (2) a general acrossthe-board increase of 6.2 percentage points in states’ FMAPs; and (3) a further increase to 

the FMAPs for those states that have a qualifying increase in unemployment rates. 

Page 8 GAO-10-263 Formula Grants
 

multiplied by itself—in the formula, the affect of a population change may 

be greater than if per capita income were not squared. 

In addition to the number of variables, the number of equations can also 

affect the role of population in grant funding formulas. Under CDBG, 

metropolitan counties and cites are eligible for the greater of the amounts 

calculated under two different equations. The variables in the first 

equation are population, extent of poverty, and extent of overcrowded 

housing. The variables in the second equation are population growth lag,18

extent of poverty, and age of housing. The use of the dual equation 

structure and the variables other than population in each equation reduce 

the effect of population changes on grant funding. 

Some formulas also have base amounts that are set at the amount of 

funding in a specified prior year and the remainder for funding is 

calculated according to a formula. For programs with set base amounts, 

only a portion of the funding might be affected by a change in population. 

Because appropriation amounts can change from year to year, the base 

amount portion of the grant will represent less of the total grant amount if 

appropriations increase, making total grant funding affected more by a 

change in population. When appropriations decrease, the share of the 

overall funding subject to the formula is lower, lessening the effect of a 

change in population on total funding. 

Some programs we reviewed contained such base amounts in their 

funding formula. Under IDEA Part B, generally each state first receives the 

same amount it received for fiscal year 1999 for the program for children 

aged 3 through 21, and, for the program for children aged 3 through 5, the 

amount the state received in fiscal year 1997. For the remainder of the 

state’s funding in a given year, (1) 85 percent is based on the state’s share 

of the 3 through 21 year old population for the school-aged program, and 

the 3 through 5 year old population for the preschool program and (2) 15 

percent is based on the state’s share of those children living in poverty. In 

another example, the Head Start program guarantees the same base 

amount as in the prior year. The remainder of the funding is allocated to 

cost of living increases and Indian and migrant and seasonal Head Start 

programs depending upon the amount remaining. According to ACF, 

 

18The Department of Housing and Urban Development defines growth lag as the shortfall in 

population that a city or county has experienced when comparing its current population to 

the population it would have had if it grew like all metropolitan cities since 1960. 

Page 9 GAO-10-263 Formula Grants
 

which administers Head Start, when the increase in appropriation is large 

enough to allow for expansion of Head Start, those funds are calculated 

based on the relative share of children aged 3 and 4 living in poverty in 

each state. 

Factors That Modify the 

Formula Amount Could 

Affect the Role of 

Population in Grant 

Funding 

Some factors modify the amount that a state would otherwise receive 

under the funding formula and could affect the role of population in grant 

funding formulas.19 The factors include the following: (1) hold harmless 

provisions and caps; (2) small state minimums; and (3) funding floors and 

ceilings. 

Hold Harmless Provisions/Caps: Hold harmless provisions and caps limit 

the amount of a decrease or increase from a prior year’s funding. Hold 

harmless provisions guarantee that the grantee will receive no less than a 

specified proportion of a previous year’s funding. If a population change 

resulted in a decrease in funding below a designated amount, the hold 

harmless provision would raise the amount of funding above what the 

grantee would otherwise have received under the formula and the amount 

of the increase would be deducted from the funding amounts of grantees 

not affected by the hold-harmless provision. Title I includes a hold 

harmless provision guaranteeing the amount made available to each local 

educational agency (LEA) not be less than from 85 to 95 percent of the 

previous fiscal year’s funding, depending on the LEA school age child 

poverty rate. 

Similarly, caps—also known as “stop gains”—limit the size of an annual 

increase as a proportion of a previous year’s funding amount or federal 

share. If a population change resulted in an increase in funding above a 

certain amount, the cap would limit the effect of the population change. 

Under IDEA Part B, no state’s allocation is to exceed the amount the state 

received under this section for the preceding fiscal year multiplied by the 

sum of 1.5 percent and the percentage increase in the amount 

appropriated under this section from the preceding fiscal year. 

Small-State Minimums: Small-state minimums guarantee that each state 

will receive at least a specified amount or percentage of total funding.20

 

19These factors could also affect the role of other variables in the funding formula. 

20When a state receives an increase due to the application of the minimum, the amount of 

the increase may be offset by a reduction in amount received by the states not subject to 

the minimum. 

Page 10 GAO-10-263 Formula Grants
 

These minimums can typically benefit smaller states that would otherwise 

receive allocations below the minimum. However, whether a state is 

considered “small” depends upon the program and is not necessarily based 

directly on a state’s population or geographic size. Several components 

within the federal-aid highway program contain such state minimums. For 

example, there is a statutory 0.5 percent state minimum on the annual 

apportionment from the Highway Trust Fund to the Surface 

Transportation Program for states having less than a specified threshold of 

qualifying roads, vehicle miles traveled on those roads, and taxes paid into 

the fund.21 When states’ minimums are applied, grant funding formulas may 

be affected less by changes in population. 

Floors/Ceilings: Floors and ceilings are lower and upper limits placed on 

the amount a state can receive under a formula. If a change in population 

results in funding under the formula falling below the floor, the state 

would be guaranteed the amount of the floor. If a population change 

results in the state exceeding the ceiling, the state could not receive more 

than the ceiling amount. The federal government’s share of Medicaid 

expenditures ranges from 50 percent (floor) to 83 percent (ceiling).22

Although 1973 was the most recent year that any state was affected by the 

ceiling, states often benefit from the FMAP floor. In fiscal year 2009, 13 

states received the minimum 50 percent matching rate. In our 2003 report 

on federal formula grant funding, we found that in 2002, under the 

statutory formula, which is based on the ratio of a state’s per capita 

income relative to U.S. per capita income, Connecticut would have 

received a 15 percent federal matching rate.23 Despite Connecticut’s 

relatively high per capita income—a calculation based in part on 

population—Connecticut received a 50 percent federal match. For 

Connecticut, in this particular year, the floor affected the role of 

population in the amount of the federal match. Similarly, because CHIP’s 

matching formula is based on the Medicaid FMAP, CHIP’s enhanced FMAP 

is also affected by Medicaid’s floor and ceiling.24 For example, if a state 

 

21The Surface Transportation Program provides flexible funding that may be used by states 

for federal-aid highway and related projects. 

22The statute also sets a 70 percent matching rate for the District of Columbia. 

23GAO, Formula Grants: 2000 Census Redistributes Federal Funding Among States, 

GAO-03-178 (Washington, D.C.: Feb. 24, 2003). 

24CHIP’s enhanced FMAP is its Medicaid FMAP increased by 30 percent of the difference 

between 100 and the current FMAP for that year. 

Page 11 GAO-10-263 Formula Grants
 

was affected by the 50 percent floor, the state would receive a matching 

percentage of 65 percent. As a result, funding for states benefiting from the 

floor would be affected less by changes in population. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 7 days from the 

report date. At that time, we will send copies to interested parties. The 

report also will be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you have any questions about this report please contact me at (202) 512-

2757 or goldenkoffr@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

Robert Goldenkoff 

listed in appendix III. 

Director 

Strategic Issues 

Page 12 GAO-10-263 Formula Grants
Appendix I: Objectives, Scope, and 

Methodology 

Page 13 GAO-10-263 

Appendix I: Objectives, Scope, and 

Methodology 

Our objectives were to determine (1) how much the federal government 

obligates to the largest federal assistance programs based on the decennial 

census and related data and how the Recovery Act changed that amount, 

and (2) what factors could affect the role of population in grant funding 

formulas. 

To answer our objectives, we identified 11 federal assistance programs 

representing the 10 largest programs in each of the fiscal years 2008 and 

2009 based on the dollar amounts obligated reported in the President’s 

budget, issued in May 2009, Office of Management and Budget (OMB), 

Analytical Perspectives, Budget of the United States Government, Fiscal 

Year 2010 (Fiscal Year 2010 budget), Table 8-4, Summary of Programs by 

Agency, Bureau, and Program. We believe that these data are sufficiently 

reliable for purposes of our review. We included the following programs in 

our review: 

• Children’s Health Insurance Program; 

• Community Development Block Grants and Neighborhood Stabilization 

Program; 

• Education State Grants, State Fiscal Stabilization Fund; 

• Federal Transit Formula Grants Programs; 

• Head Start; 

• Highway Planning and Construction; 

• Individuals with Disabilities Education Act, Part B; 

• Medicaid; 

• Section 8 Housing Choice Vouchers; 

• Temporary Aid for Needy Families; and 

• Title I Grants to Local Education Agencies.1

To determine whether the program’s funding relied on decennial census 

and related census data, we reviewed statutes, GAO reports, the Catalog of 

Federal Domestic Assistance Programs (CFDA), Congressional Research 

Service (CRS) reports, and agency Web pages and reports related to each 

of the programs. For purposes of our analysis, we defined census and 

related data as (1) data obtained from the decennial census and annual 

updates, (2) census-related surveys—that is, those surveys that base their 

samples on the decennial census; or (3) their derivatives—that is, statistics 

 

1

In total, we reviewed 11 programs. The State Fiscal Stabilization Fund, created by the 

Recovery Act, was one of the 10 largest federal assistance programs in fiscal year 2009. 

With the addition of the State Fiscal Stabilization Fund–Education State Grants, in fiscal 

year 2009, Head Start—one of the 10 largest programs in fiscal year 2008—was not one of 

the largest federal assistance programs in fiscal year 2009. 

 Formula Grants
Appendix I: Objectives, Scope, and 

Methodology 

produced from data contained in the decennial census or a census-related 

survey. We considered funding to be based on census or related data if any 

part of the funding formula or eligibility requirements relied on these data 

sources. For the programs that relied at least in part on census and related 

data, we summed the total obligation amounts reported in the Fiscal Year 

2010 budget, Table 8-4, Summary of Programs by Agency, Bureau, and 

Program, as well as Table 8-6, Summary of Recovery Act Grants by 

Agency, Bureau, and Program.2

 Because the actual obligations for fiscal 

year 2009 for each of these programs are not yet available from OMB, we 

are reporting the estimated fiscal year 2009 obligations reported in the 

Fiscal Year 2010 budget. We did not independently verify or assess the 

extent to which an agency actually distributes funds according to the 

statutory formula. We did not identify all possible uses of decennial census 

and related data to fund the selected programs. We did not conduct any 

simulations to determine the extent to which any particular variable relied 

on the funding formula. 

To determine what factors could affect the role of population in grant 

funding formulas, from our prior work related to formula grants (see the 

list of related GAO products at the end of this report) and other research 

on formula grants,3

 we first identified factors that illustrate the different 

ways that such factors could affect the amount of grant funding. To obtain 

illustrative examples of how the factors are used in the selected programs, 

we reviewed statutes, GAO reports, the CFDA, CRS reports, and agency 

Web pages and reports related to each of the programs. We asked the 

responsible agencies to confirm the accuracy of information being 

reported on the existence of the factors in and descriptions of each 

program. We received responses on each of the 11 programs. We did not 

identify all possible factors that could affect the amount of grant funding. 

The presentation of these factors is not intended to suggest that they are 

the most important either generally, or to the specific programs listed 

here. The number of times a factor or a program is cited in reported 

examples does not indicate anything judgmental about the feature or the 

 

2

Table 8-6, Summary of Recovery Act Grants by Agency, Bureau, and Program was used for 

fiscal year 2009 estimated obligations only. 

3

National Research Council, Statistical Issues in Allocating Funds by Formula (Panel on 

formula allocations), Thomas A. Louis, Thomas B. Jabine, and Marisa A. Gerstein, editors, 

Committee on National Statistics, Division of Behavioral and Social Sciences and 

Education, the National Academies Press; Washington, D.C.: 2003. 

Page 14 GAO-10-263 Formula Grants
Appendix I: Objectives, Scope, and 

Methodology 

program. The presence of a factor in statute does not indicate that a factor 

is either significant or relevant to actual funding for the program. 

We conducted our work from June 2009 to December 2009, in accordance 

with all sections of GAO’s Quality Assurance Framework that are relevant 

to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions. 

Page 15 GAO-10-263 Formula Grants
Appendix II: Descriptions of the Largest Appendix II: Descriptions of the Largest Federal Assistance Programs 

Federal Assistance Programs 

Children’s Health Insurance Program (CHIP): CHIP is a federal-state 

matching grant program administered by the Department of Health and 

Human Services’ Centers for Medicare & Medicaid Services (CMS). The 

program provides funding for states to cover children (and in some states 

pregnant women) who lack health insurance and whose families’ low to 

moderate income exceeds Medicaid eligibility levels. Each state has a 

different federal match level based on the Medicaid Federal Medical 

Assistance Percentage (FMAP), called the enhanced FMAP. 

Community Development Block Grant (CDBG) program: The 

Department of Housing and Urban Development provides CDBG funding 

to communities to develop decent housing, suitable living environments, 

and economic opportunities for people of low and moderate income. 

Funds are distributed among communities using a formula based on 

indicators of community development need. 

Education State Grants, State Fiscal Stabilization Fund (State 

Fiscal Stabilization Fund):1

 The State Fiscal Stabilization Fund program 

is a new one-time appropriation under the American Recovery and 

Reinvestment Act of 2009. It is administered by the U.S. Department of 

Education. The funds are intended to help (1) stabilize state and local 

government budgets in order to minimize and avoid reductions in 

education and other essential public services; (2) ensure that local 

educational agencies and public institutions of higher education have the 

resources to avert cuts and retain teachers and professors; and (3) support 

the modernization, renovation, and repair of school and college facilities. 

According to the Department of Education, states participating in the 

program must provide a commitment to advance essential education 

reforms to benefit students from early learning through post-secondary 

education. 

Federal Transit Formula Grants Programs: Administered by the 

Department of Transportation’s Federal Transit Administration, these 

grant programs provide capital and operating assistance for public transit 

systems. Three of the major formula federal assistance programs include 

the following: (1) the Urbanized Area Formula Program, which makes 

federal resources available to areas with populations of 50,000 or more 

 

1

According to the Department of Education, the description that follows applies to the 

entire State Fiscal Stabilization Fund—both Education State Grants and Government 

Services funds. 

Page 16 GAO-10-263 Formula Grants
Appendix II: Descriptions of the Largest 

Federal Assistance Programs 

and to governors for transit capital and operating assistance and for 

transportation related planning; (2) the Nonurbanized Area Formula 

Program, which provides formula funding to states for the purpose of 

supporting public transportation in areas with populations of less than 

50,000; and (3) Capital Investment—Fixed Guideway Modernization 

Program,2

 which may be used for capital projects to maintain, modernize, 

or improve fixed guideway systems. 

Head Start: Head Start is administered by the Department of Health and 

Human Services’s Administration for Children and Families (ACF) and 

provides grants directly to over 1,600 local agencies. Head Start provides 

funds for early childhood development services to low-income children 

and their families. These services include education, health, nutrition, and 

social services to prepare children to enter kindergarten and to improve 

the conditions necessary for their success later in school and life. 

Highway Planning and Construction: The Department of 

Transportation’s Federal Highway Administration (FHWA) administers the 

Highway Planning and Construction Program, also known as the federalaid highway program. According to FHWA, the federal-aid highway 

program provides federal financial resources and technical assistance to 

state and local governments for planning, constructing, preserving, and 

improving federal-aid eligible highways. The federal-aid eligible highway 

system includes the National Highway System (NHS), a network of about 

163,000 miles of roads that comprises only 4 percent of the nation’s total 

public road mileage, but carries approximately 45 percent of the nation’s 

highway traffic as well as an additional 1.1 million miles of roads that are 

not on the NHS, but that are eligible for federal-aid. 

Individuals with Disabilities Education Act (IDEA) Part B: The 

Department of Education has responsibility for oversight of IDEA and for 

ensuring that states are complying with the law. IDEA Part B grants 

provide funding for special education and related services for children and 

youth ages 3 to 21. IDEA Part B governs how states and public agencies 

provide special education and related services to more than 6.5 million 

eligible children and youth with disabilities. To receive IDEA Part B 

funding, states agree to comply with certain requirements regarding 

 

2

“Fixed guideway” refers to any transit service that uses exclusive or controlled rights-ofway or rails, entirely or in part. 

Page 17 GAO-10-263 Formula Grants
Appendix II: Descriptions of the Largest 

Federal Assistance Programs 

appropriate special education and related services for children with 

disabilities. 

Medicaid: CMS provides federal oversight of state Medicaid programs. 

Medicaid is a health insurance program jointly funded by the federal 

government and the states. Generally, eligibility for Medicaid is limited to 

low-income children, pregnant women, parents of dependent children, the 

elderly, and people with disabilities. The federal government’s share of a 

state’s expenditures for most Medicaid services is called the Federal 

Medical Assistance Percentage (FMAP). Federal Medicaid funding to 

states is not limited, provided the states contribute their share of program 

expenditures. 

Section 8 Housing Choice Vouchers: The Section 8 Housing Choice 

Voucher Program is one of three key rental subsidy programs of the 

Department of Housing and Urban Development. The program is 

administered by local public housing agencies and provides rental 

vouchers to very low-income families to obtain decent, safe, and 

affordable housing. Following the discontinuation of funds for new 

construction of public housing and project-based Section 8, the Section 8 

Housing Choice Voucher program has been the primary means of 

providing new rental assistance on a large scale. The program currently 

serves over 2 million families. 

Temporary Aid for Needy Families (TANF): TANF is administered by 

ACF and provides funding to states through four grants—basic block, 

supplemental, and two contingency (recession-related). These grants are 

intended to: (1) provide assistance to needy families with children so they 

can live in their own homes or relatives’ homes; (2) end parents’ 

dependence on government benefits through work, job preparation, and 

marriage; (3) reduce out-of-wedlock pregnancies; and (4) promote the 

formation and maintenance of two-parent families. 

Title I Grants to Local Education Agencies (LEA): Title I is 

administered by the Department of Education and provides financial 

assistance to LEAs that target funds to the schools with the highest 

percentage of low-income families. Schools use Title I funds to provide 

additional academic support and learning opportunities to help lowachieving children master challenging curricula and meet state standards 

in core academic subjects. Federal funds are currently allocated through 

four statutory formulas that are based primarily on census poverty 

estimates and the cost of education in each state, as measured by each 

state’s expenditure per elementary and secondary student. 

Page 18 GAO-10-263 Formula Grants
Appendix III: GAO

A

 Contact and 

cknowledgments 

Page 19 GAO-10-263 

Appendix III: GAO Contact and 

Acknowledgments 

Robert Goldenkoff on (202) 512-2757 or at goldenkoffr@gao.gov GAO Contact 

In addition to the individual named above, Ty Mitchell, Assistant Director; 

Robert Dinkelmeyer; Gregory Dybalski; Amber G. Edwards; Robert L. 

Gebhart; Lois Hanshaw; Andrea J. Levine; Victor J. Miller; Melanie H. 

Papasian; and Tamara F. Stenzel made key contributions to this report. 

Acknowledgments 

 Formula Grants
Related GAO Products Related GAO Products 

Formula Grants: Census Data Are among Several Factors That Can 

Affect Funding Allocations. GAO-09-832T. Washington, D.C.: July 9, 2009. 

2010 Census: Population Measures Are Important for Federal Funding 

Allocations. GAO-08-230T. Washington, D.C.: October 27, 2007. 

Community Development Block Grant Formula: Options for Improving 

the Targeting of Funds. GAO-06-904T. Washington, D.C.: June 27, 2006. 

Federal Assistance: Illustrative Simulations of Using Statistical 

Population Estimates for Reallocating Certain Federal Funding. 

GAO-06-567. Washington, D.C.: June 22, 2006. 

Community Development Block Grant Formula: Targeting Assistance to 

High-Need Communities Could Be Enhanced. GAO-05-622T. Washington, 

D.C.: April 26, 2005. 

Federal-Aid Highways: Trends, Effect on State Spending, and Options 

for Future Program Design. GAO-04-802. Washington, D.C.: August 31, 

2004. 

Medicaid Formula: Differences in Funding Ability among States Often 

Are Widened. GAO-03-620. Washington, D.C.: July 10, 2003. 

Formula Grants: 2000 Census Redistributes Federal Funding Among 

States. GAO-03-178. Washington, D.C.: February 24, 2003. 

Title I Funding: Poor Children Benefit Though Funding Per Poor Child 

Differs. GAO-02-242. Washington, D.C.: January 31, 2002. 

Formula Grants: Effects of Adjusted Population Counts on Federal 

Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999. 

Federal Grants: Design Improvements Could Help Federal Resources Go 

Further.GAO/AMID-97-7. Washington, D.C.: December 18, 1996. 

Block Grants: Characteristics, Experience, and Lessons Learned. 

GAO/HEHS-95-74. Washington, D.C.: February 9, 1995. 

Formula Programs: Adjusted Census Data Would Redistribute Small 

Percentage of Funds to States. GAO/GGD-92-12. Washington, D.C.: 

November 7, 1991. 

(450767) Page 20 GAO-10-263 Formula Grants
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