Federal Assistance: Grant System Continues to Be Highly Fragmented
Published: 2003-04-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Financial Assistance Management Improvement Act of 1999 is one of the most recent in a series of efforts to reform the federal grants management system. The act seeks to improve the effectiveness and performance of Federal financial assistance programs; simplify application and reporting requirements; improve delivery of services to the public; and facilitate greater coordination among those responsible for delivering such services. GAO has a responsibility to evaluate the implementation of this Act by 2005 and will soon begin developing an approach and methodology for the study. This testimony describes the problems fostered by proliferation and fragmentation, which the Act addresses indirectly.
section_title: What GAO Found
paragraphs: While the Federal Financial Assistance Management Improvement Act of 1999 (FFAMIA) offers promising opportunities to improve the federal grant system, there remain over 600 different federal financial assistance programs to implement domestic policy. Federal grant recipients must navigate through a myriad of federal grant programs in order to find the appropriate source of funds to finance projects that meet local needs and address local issues. Despite the process reforms initiated under FFAMIA, the federal grant system continues to be highly fragmented, potentially resulting in a high degree of duplication and overlap among federal programs. Since the 1960s the number and dollar amount of federal grant programs has grown substantially. Growth in both the number of grant programs and the level of funding have created a high level of complexity in the system. While the act seeks to improve the effectiveness and performance of federal assistance programs by simplifying grant administration and facilitating coordination among grant recipients, Congress could also consider consolidating grants that have duplicative objectives and missions. Consolidation can be achieved through a variety of ways including combining multiple programs into block grants, establishing performance partnerships, and providing for waiver authority of federal funding restrictions and program rules when requested and sufficiently justified by state or local governments. Each of these alternatives has implications for accountability that Congress will face as it considers improvements to the federal grant system.

section_title: Letter
paragraphs: I appreciate the opportunity to be here today to discuss issues relating to  the management of the federal grant system.  The Federal Financial  Assistance Management Improvement Act of 1999 is one of the most recent  in a series of efforts to reform the federal grants management system  extending back to the mid-1960s.  Like most of the earlier reforms, the act  seeks to:
Improve the effectiveness and performance of Federal financial   Simplify federal financial assistance application and reporting   Improve delivery of services to the public; and   Facilitate greater coordination among those responsible for delivering  such services.
As such, the act seeks to address many of the administrative burdens that  confound the nation’s many grant recipients.  As the 106th Congress found,  there are still more than 600 different federal financial assistance programs  to implement domestic policy—in fact, OMB’s latest count in 2001 found  668 different grant programs.  On the one hand, the administration’s efforts  to implement the act seek to streamline the flow of information on the  various grants and develop uniform application and reporting procedures.   On the other hand, federal grant recipients must still navigate through a  myriad of federal grant programs in order to find the appropriate source of  funds to finance projects that meet local needs and address local issues. In  many cases, numerous grants from several different agencies support  similar purposes and activities, giving rise to the potential for  fragmentation in service delivery.
In testimony this morning you may hear about the administration’s efforts  to implement this act.  GAO has a responsibility to evaluate the  implementation of the act by 2005 and will soon begin developing an  approach and methodology for the study. This hearing provides valuable  information to help us understand the progress made and helps us better  understand congressional oversight interests. We look forward to working  with your subcommittee as well as other congressional clients as we  develop our approach and methodology for this study.
Today, I would like to provide a broader perspective on the structure of  federal grants to state and local governments in general and the kinds of  management and service delivery problems fostered by the proliferation of  federal assistance programs and the fragmentation of responsibility among  different federal departments and agencies.  In my statement this morning,  I would like to offer a short history of grant management reform efforts,  describe the current profile of federal grants to states and local  governments, and discuss GAO’s recent work on these issues. Using the  homeland security grants as an example, I will explain how the system  continues to be highly fragmented, potentially resulting in a high degree of  duplication and overlap among federal programs.  Finally, I would like to  suggest a range of alternatives available to Congress as it weighs reforms of  the nation’s homeland security grant programs.
This testimony draws upon our wide-ranging ongoing and completed work  on federal grants management issues, grant reform efforts, homeland  security, and performance management initiatives. We conducted our work  in accordance with generally accepted government auditing standards.
subsections: section_title: Trends in Federal Grants
paragraphs: In 1862, Congress enacted the Morrill Act to help states establish and  maintain land-grant colleges.  The act carefully specified the grant’s  objectives, placed conditions on the use of revenue derived from the sale of  the granted lands, and required annual reports.  This established the  pattern of categorical grants—providing needed resources for specific  purposes in exchange for acceptance of minimum national standards.  In  the 1960s, the number and dollar amount of federal assistance programs  grew substantially.  (See fig. 1.)  During this timeframe, major steps were  taken to broaden elementary, secondary, and higher education  opportunities; promote development in economically depressed areas; to  help finance health services and medical care for the indigent; launch a war  on poverty; and attempt a comprehensive physical, social, and economic  program to transform slum and blight-ridden cities into model  neighborhoods.
Growth in the both the numbers of new grant programs and the level of  funding created greater complexity.  During the 1960s and into the 1970s,  various reforms were begun to address the complexity in the grant system.   In 1968, Congress passed the Intergovernmental Cooperation Act of 1968  that sought to improve the cooperation and coordination of activities  among levels of government. From 1969-1973, the President initiated the  Federal Assistance Review—a government-wide effort with a goal to  streamline, simplify, and speed up the flow of federal assistance and  improve the federal government’s responsiveness to its state and local  partners.  In addition, Federal Management Circular 74-7, issued in 1974,  provided for standardized administrative provisions across grant programs.   The Joint Funding Simplification Act of 1974 permitted grantees to  streamline federal assistance by enabling them to combine funding from  several grants administered by one or more federal agencies.
As previous congressional committee reports have noted, these  administrative simplification initiatives, while useful in addressing certain  administrative burdens associated with grants, did not address the more  fundamental challenges stemming from the fragmented nature of the grant  system. For example, the House Government Operations Committee, the  predecessor to the House Government Reform Committee, noted that the  legislative consolidation of closely related categorical programs into  broader purpose grants and the placement of similar programs in a single  federal agency have more potential for significantly improving grant-in-aid  administration.
Over the years, Congress at times has acted to improve the grant system  through consolidation.  The Omnibus Budget Reconciliation Act of 1981  consolidated a number of social service programs into nine block grants  which allowed for greater state and local autonomy and flexibility in the  fashioning of local strategies to address federal objectives.  More recently,  in 1996 the 104th Congress consolidated a number of welfare-related  programs into the Temporary Assistance for Needy Families block grant.   Notwithstanding these efforts, as figure 2 shows, over the last 20 years each  period of consolidation was followed by a proliferation of new federal  programs.  Moreover, some of the block grants were later recategorized, as  Congress added new set-asides and cost-ceilings to address national  programmatic concerns, thereby limiting the grants’ flexibility.
A sizable increase in the number of grant programs could be justified and  simply be an indication that as society evolves the nation’s needs also  change and we need new tools—in the form of new programs—at our  disposal to address those needs.  As such, program proliferation may be an  indication that there is heightened congressional interest in ensuring that  federal funds are directed in such a way as to meet specific—more  narrowly defined—national goals and objectives.  Nonetheless, the  problems associated with a proliferation of federal programs are  compounded when multiple grants are available for the same or similar  purposes, forcing grant recipients to package different programs with  potentially conflicting requirements to address common problems.
Moreover, the total funds available for many of these programs are quite  small. As figure 3 shows, the vast majority of available federal funds—78  percent—are concentrated in 20 large grant programs. Stated differently,  Mr. Chairman, in 2001 169 federal grant programs were funded at less than  $5 million.  Cumulatively, these small programs receive less than 1 percent  of all federal funds provided through the grant system.
As you can imagine, at the recipient level, the funds available can be quite  small, particularly—as you may hear in the statements of members of the  second panel—in relation to the administrative effort and costs incurred in  applying for and managing the grant. For example, FEMA’s Hazardous  Materials Assistance program provided grants from “a few dollars to  $20,000” per applicant, according to the Catalog of Federal Domestic  Assistance. FEMA’s State Fire Training Systems Grants ranged from only  $25,000 to $30,000 per state. While these funds undoubtedly served  important purposes, the question is whether the funds could have been  provided through more efficient means.
section_title: Continuing Fragmentation in the Structure of Federal Grants
paragraphs: Many of the same grants management challenges from the past are still  with us today.  GAO’s work over the years has repeatedly shown that  mission fragmentation and program overlap are widespread in the federal  government and that crosscutting program efforts are not well  coordinated. As far back as 1975, GAO reported that many of the  fundamental problems in managing federal grants were the direct result of  the proliferation of federal assistance programs and the fragmentation of  responsibility among different federal departments and agencies.  While  we noted that the large number and variety of programs tended to ensure  that a program is available to meet a defined need, we found that  substantial problems occur when state and local governments attempt to  identify, obtain, and use the fragmented grants-in-aid system to meet their  needs.
More recently, GAO has addressed mission fragmentation through the  framework provided under the Government Performance and Results Act  (the Results Act).  The Results Act's key stages include defining missions  and outcomes, developing a strategy, measuring  performance, and using  performance information.  For example, we reported in 2000 on the 50  programs for the homeless that were administered by 8 federal agencies.  Housing services were provided under 23 programs operated by 4 agencies,  and food and nutrition services were under 26 programs administered by 6  agencies.
We recently identified 44 programs administered by 9 different federal  agencies that provided a range of employment and training services.  In the  late 1990s, the Congress tried to bring some unity to this fragmented  employment and training system by requiring states to provide most  federally funded employment-related services through a centralized service  delivery system—one-stop centers.  Two years earlier, welfare reform  legislation provided states with the flexibility to focus on helping needy  adults with children find and maintain employment.  Despite the similar  focus, the welfare program was not required to be a part of the new  workforce investment system.  We recently reported that nearly all states  report some coordination of their welfare and workforce systems services  at the state and local level, but that several challenges remain.  For  example, different definitions of what constitutes work as well as complex  reporting requirements under both programs hamper state and local  coordination efforts.  Though some states and localities have found  creative ways to work around these issues, the differences remain barriers  to coordination for many others.  Each of these programs is operated out of  a different federal agency; the welfare program is administered from the  Department of Health and Human Services (HHS), and the Department of  Labor (Labor) administers the workforce investment program.  We found  that HHS and Labor have not addressed differences in program definitions  and reporting requirements.
section_title: Fragmentation in Homeland Security Grants for First Responders
paragraphs: It falls to the 108th Congress to redesign the nation’s homeland security  grant programs in light of the events of September 11, 2001.  In so doing,  Congress must balance the needs of our state and local partners in their  call for both additional resources and more flexibility with the nation’s  goals of attaining the highest levels of preparedness.   This goal is too  important, and federal resources too scarce, to worry about holding our  partners accountable after they have already spent the funds.
Funding increases for combating terrorism have been dramatic and reflect  the high priority that the administration and Congress place on this  mission.  These increases bring an added responsibility to ensure that this  large investment of taxpayer dollars is wisely applied.  We recently  reported on some of the management challenges that could stem from  increased funding and noted that these challenges—including grants  management—could impede the implementation of national strategies if  not effectively addressed.
GAO testified before this subcommittee last year on the development of  counter-terrorism programs for state and local governments that were  similar and potentially duplicative.  We have identified at least 16 different  grant programs that can be used by the nation’s first responders to address  the nation’s homeland security.  These grants are currently provided  through two different directorates of the new Department of Homeland  Security, the Department of Justice, and HHS and serve state governments,  cities and localities, as well as counties and others.  Multiple fragmented  grant programs can create a confusing and administratively burdensome  process for state and local officials seeking to use federal resources for  pressing homeland security needs.  This is illustrated in figure 4 which  shows the complex delivery structure for these 16 preparedness grant  programs.
To illustrate the level of fragmentation across homeland security programs,  we have shown in table 1 significant features for the major assistance  programs targeted to first responders.  As the table shows, substantial  differences exist in the types of recipients and the allocation methods for  grants addressing similar purposes.  For example, some grants go directly  to local first responders such as firefighters, others go to state emergency  management agencies, and at least one goes to state fire marshals.  The  allocation methods differ as well—some are formula grants while others  involve discretionary decisions by federal agency officials on a project  basis.  Grant requirements differ as well—DHS’ Assistance to Firefighters  Grant has a maintenance of effort requirement (MOE) while the State Fire  Training Systems Grant has no similar requirement.
Table 2 shows considerable overlap in the activities that these programs  support—for example, funding from both the State and Local Domestic  Preparedness Exercise Support Program and the State Domestic  Preparedness Equipment Support Program can be used for planning and  conducting exercises.
The fragmented delivery of federal assistance can complicate coordination  and integration of services and planning at state and local levels. Homeland  security is a complex mission requiring the coordinated participation of  many federal, state, and local government entities as well as the private  sector.  As the National Homeland Security Strategy recognizes, preparing  the nation to address the new threats from terrorism calls for partnerships  across many disparate actors at many levels in our system.  Within local  areas, for example, the failure of local emergency communications systems  to operate on an interoperable basis across neighboring jurisdictions  reflects coordination problems within local regions. Local governments are  starting to assess how to restructure relationships along contiguous local  entities to take advantage of economies of scale, promote resource sharing,  and improve coordination on a regional basis. The complex web of federal  grants depicted in figure 4 suggests that by allocating federal aid to  different players at the state and local level, federal grant programs may  continue to reinforce state and local fragmentation.
Some have observed that federal grant restrictions constrain the flexibility  state and local officials need to tailor multiple grants to address state and  local needs and priorities. For example, some local officials have testified  that rigid federal funding rules constrains their flexibility and cannot be  used to fund activities that meet their needs.  We have reported that overlap  and fragmentation among homeland assistance programs fosters  inefficiencies and concerns in first responder communities.  State and local  officials have repeatedly voiced frustration and confusion about the  burdensome and inconsistent application processes among programs.  We  concluded that improved coordination at both federal and state and local  levels would be promoted by consolidating some of these first responder  assistance programs.
subsections: section_title: Potential Alternatives
paragraphs: In addressing the fragmentation prompted by the current homeland  security grant system, Congress has several alternatives available. Actions  taken by federal agencies under the rubric of the Federal Financial  Assistance Management Improvement Act of 1999 will help to streamline  the process for obtaining aid across the myriad of programs and  standardize administrative requirements. These initiatives promise to  reduce administrative burdens at all levels and promote a more efficient  grants management process in general.
Going beyond these initiatives to address the underlying fragmentation of  grant programs remains a challenge for our federal system in the homeland  security area, as well as across other program areas.  Several alternatives  have been pursued in the past to overcome problems fostered by  fragmentation in the federal aid structure. I will discuss three briefly here— block grants, performance partnerships, and grant waivers.
Block grants are one option that Congress has chosen to consolidate  related programs. Block grants currently are used to deliver assistance in  such areas as welfare reform, community development, social services, law  enforcement, public health and education.  While such initiatives often  involved the consolidation of categorical grants, block grants also typically  devolve substantial authority for setting priorities to state or local  governments. Under block grants, state and local officials bear the primary  responsibility for monitoring and overseeing the planning, management,  and implementation of activities financed with federal grant funds.  Accordingly, block grant proposals generally call for Congress to make a  fundamental decision about where power and authority to make decisions  should rest in our federal system for a particular program area.
While block grants devolve authority for decisions, they can and have been  designed to facilitate some accountability for national goals and objectives.  Since federal funds are at stake, Congress typically wants to know how  federal funds are spent and what state and local governments have  accomplished. Indeed, the history of block grants suggests that the absence  of national accountability and reporting for results can either undermine  continued congressional support or prompt more prescriptive controls to  ensure that national objectives are being achieved. For instance, the block  grants enacted as part of the Omnibus Reconciliation Act of 1981 were not  implemented in a manner that encouraged consistent reporting of program  data.  These block grants have been subject to at least 58 subsequent  congressional actions, many of which served to recategorize the programs  by tightening program requirements and limiting the grantees’ flexibility.
The consolidation of categorical grants, however, need not be structured as  a block grant. In fact, federal funding streams can be combined while  retaining strong performance oriented accountability by state and local  governments for discrete federal goals and objectives. State and local  governments can be provided greater flexibility in using federal funds in  exchange for more rigorous accountability for results. One example of this  model involves what became known as “performance partnerships,”  exemplified by the initiative of the Environmental Protection Agency  (EPA).  Under this initiative, states may voluntarily enter Performance  Partnership Agreements with their EPA regional offices which can include  major federal environmental grant programs. These agreements delineate  which problems would receive priority attention within a state and how the  state’s performance will be measured. Congress provided states with  flexibility to use funds from two or more environmental program grants in  a more flexible and streamlined manner.
The benefits of the EPA performance partnership system are ones that  should also be helpful for other areas such as homeland security.  EPA  partnerships (1) allowed states to shift resources to address priority needs  and fund crosscutting efforts that are difficult to support with traditional  grants, (2) provided a way to support innovative or unique projects, (3)  increased the focus on environmental results and program effectiveness,  and (4) fostered reduced reporting burden and improved information  management.
But we reported some significant implementation issues for the  performance partnership approach as well.  In 1999, we reported that the  initiative was hampered by an absence of baseline data against which  environmental improvements could be measured and the inherent  difficulty in quantifying certain results and linking them to program  activities and the considerable resources needed for high-quality  performance measurement.
The challenge for developing performance partnerships for homeland  security grants will be daunting because the administration has yet to  develop clearly defined federal and national performance goals and  measures. We have reported that the initiatives outlined in the National  Strategy for Homeland Security often do not provide performance goals  and measures to assess and improve preparedness at the federal or  national levels.  The strategy generally describes overarching objectives  and priorities, but not measurable outcomes.  Lacking such measures and  outcomes at the national level will surely encumber the federal, state, and  local partners’ ability to establish agreements on what sort of goals are  expected of our state and local partners, much less how they could be  measured.
A third approach to overcoming fragmentation could be to provide in law  for waivers of federal funding restrictions and program rules when  requested and sufficiently justified by state or local governments.  In the  homeland security area, legislation has been introduced to provide waivers  for states to use funds from one category of federal assistance, such as  equipment, to support other homeland security activities such as training.  This approach could help recipients adjust available federal funds to  unique needs and conditions in each state.  Unlike full grant  consolidation—which is legislated—each waiver  must be approved by  federal agency officials before grantees could have the kind of flexibility  they desire.  Some might view the approval requirement as an additional  administrative burden while others consider the federal role essential to  ensuring accountability.
section_title: Conclusions
paragraphs: Mr. Chairman, we are eager to work with your subcommittee and others to  improve the efficiency and effectiveness of our federal grant system.  Improving the grant partnership among federal and nonfederal officials is  vital to achieving important national goals. The Federal Financial  Assistance Management Improvement Act of 1999 offers promising  opportunities to help those officials achieve their mutual goals through the  use of federal assistance programs. We look forward to reviewing the  activities undertaken pursuant to the Act with an eye toward both  highlighting progress as well as identifying further improvements that can  be made at all levels of our federal system.  We are also ready to assist  Congress in identifying the problems stemming from the underlying nature  of the grant system and in sorting through the tradeoffs Congress will face  in resolving these problems.
This concludes my prepared statement. I would be pleased to answer any  questions you or the members of the subcommittee may have at this time.