Statistical Issues in Allocating Funds by Formula (2003) / Chapter Skim
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1. Introduction
1. Introduction
Pages 5-17
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1 billion. The December 200 1 update of the Catalog of Federal Domestic Assistance showed 180 federal formula allocation programs with FY 2000 obligations totaling approximately $262.3 billion.
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Block grant programs are a subset of formula allocation programs in which the recipient jurisdiction has broad discretion for the application of funds received in support of such programs as community development or the prevention and treatment of substance abuse, which are specified in the authorizing legislation. Matching grant programs, such as Medicaid and certain transportation programs, require that the recipient state provide a matching percentage of funds from state sources.
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In most federal formula allocation programs, however, state agencies take responsibility for withinstate distribution of the funds allocated to them, subject to program regulations and various kinds of audits and reviews. Importantly, states use formulas to distribute a substantial amount of their own funds.
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A broad-based grant program to provide school aid to federally impacted areas was enacted in 1950, and the first block grant program, comprehensive health grants, was established in 1962 (Break, 19801. In 1965, Title I of the Elementary and Secondary Education Act established a formula-based allocation of federal funds designed to improve educational opportunities for school-age children from poor families.
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Today, formulas are used to allocate well over $250 billion of federal funds annually to state and local governments via approximately 180 federal programs designed to meet a wide spectrum of economic and social objectives.] Large amounts of state revenues are distributed to cities, counties, and other local governments byway offormula allocation programs.
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Two extreme views of formula allocation programs can be contrasted. At one extreme is the view that underlying any formula allocation program there exists a clear set of principles that define how funds should be allocated.
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For example, several years ago in the State Capitalization Grants Program of the Environmental Protection Agency, a formula based on a periodic survey of clean water needs was replaced by legislated shares. In the majority of formula allocation programs, the formula is specified in legislation and leaves little or no discretion to the program administrators to influence the method of calculation.
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FEDERAL, STATE, AND INTERNATIONAL PROGRAMS Table 1-1 provides a list of the 11 largest formula allocation programs operating in FY 1999 and 2000, with the amounts of funds obligated in each of those years. The dominant role of Medicaid in financial terms is evident.
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State programs are especially significant in the field of public education, in which state funds cover nearly half of all expenditures, compared with a less than 10 percent share provided by Title I education and other federal programs (National Research Council, 1999a:Table 21. The use of formulas to allocate funds is not restricted to the United States, although to our knowledge no country has quite the variety of separate formula allocation programs of the United States.
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All reports will be intended to help policy makers and others who are involved in specifying formula features and data sources for estimates for formulas. The panel started with a primarily technical focus but soon became aware that meaningful recommendations for improvements in the structure of formulas and inputs to formula allocation processes would have to take full account of the policy and legislative contexts in which these processes are developed.
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This final report explores the broad statistical issues, embedded in a political and policy framework, that arise in the development and use of formulas for allocating federal funds to state and local governments. The report identifies specific statistical and methodological problems associated with the use of formulas for fund allocation, such as those involving estimation, sampling and measurement error, and sensitivity analysis, but it does not seek to characterize them in detail, as most such description would necessarily be highly program specific.
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federal aid programs to those operated by the State of California, several foreign countries, and the United Nations. Chapter 7 begins with a brief discussion of how funds received under a number of federal formula allocation programs are managed and used by various agencies of the California state government.
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Appendix D outlines the contents of a proposed handbook on fund allocation formulas and processes. Appendix E lists participants in the panel's meetings and the April 2000 Workshop on Formulas for Allocating Program Funds.
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