Statistical Issues in Allocating Funds by Formula (2003) / Chapter Skim
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9. Conclusions and Recommendations
9. Conclusions and Recommendations
Pages 79-89
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From page 79... ...
The essential feature of a formula allocation program is that the amounts to be allocated are determined by a formula that uses statistical information to calculate or estimate the values of its inputs, and these are processed to produce outputs. Often, the allocation process consists of a basic calculation using a mathematical formula or algorithm, followed by adjustments that place constraints on levels or shares (percentages of the total allocation)
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From page 80... ...
ROLES OF CONGRESS AND THE PROGRAM AGENCIES Program agencies in the executive branch vary in the latitude Congress gives them to decide on the basic formula to be used, the variables (e.g., population size, tax revenue, per capita income) to be used to represent formula components, and the statistical data series to be used to calculate or estimate their values.
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From page 81... ...
For each formula allocation program, an effective trade-off between congressional control and locus of expertise and monitoring must be found. As they have already done for many formula allocation programs, legislators should consider giving some flexibility to program agencies, especially in determining what data sources and procedures should be used to produce estimates of the components of allocation formulas.
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From page 82... ...
Inevitably, there will be changes in the total funds available for the program, the distribution of need among aid recipients, and the nature and quality of the data sources available for use in estimating formula components. Tradeoffs between stability of funding and adjustments to meet shifting needs should be considered.
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From page 83... ...
For example, the smallarea estimates of income and poverty used in the Title I education program combine information from the decennial census with more timely data sources, such as the Current Population Survey and the federal income tax and Food Stamp programs. Whether to use the latest available data to compute each year's allocations, while recognizing that updating some series but not others may prove counterproductive.
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From page 84... ...
Other examples of unintended behavior include: · When the measure of need depends on data reported by the recipient jurisdictions and reporting requirements are not clearly defined, some recipients may adopt definitions that work in their favor. · When the formula includes current expenditure in the program area as an input, the amount shown in the books could be manipulated to maximize the jurisdiction's benefit without changing the amount actually spent.
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From page 85... ...
If undesired effects are identified, policy makers should consider such changes as loosening the hold-harmless constraint or introducing the use of moving averages as an alternative means for reducing the volatility of allocations to estimate formula components. SPECIAL FEATURES: THRESHOLDS Some allocation formulas include thresholds to ensure that certain designated funds are allocated only to those jurisdictions in which need is relatively great.
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From page 86... ...
Formula designers should examine the degree to which proposed minimum amounts or shares produce departure from allocations based on estimated needs. SIMULATIONS OF FORMULA ALLOCATIONS When Congress develops or reauthorizes a formula allocation program, it is customary to run one or more currently available data series through alternative versions of the allocation procedure.
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From page 87... ...
Changes in funding levels, need distributions, and input data sources also indicate a need for evaluations of allocation processes, using simulation techniques, that are longitudinal rather than just cross-sectional. Simulations should be used to explore cross-cutting issues, such as choices among alternative measures of fiscal capacity and the relative merits of using hold-harmless provisions or moving averages to dampen the effects of large changes in the formula inputs.
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From page 88... ...
Recommendation 10. The Statistical Policy Office of the Office of Management and Budget should establish a standing Interagency Committee on Formula Allocations with the mission of disseminating general information about formula features and data sources to formula designers and program administrators and to conduct or sponsor research on relevant technical issues.
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From page 89... ...
· Statistical issues that arise in using formula components designed to compensate for interstate differences in fiscal capacity, focusing primarily on the kinds of state data needed to estimate such components, the existing sources of such data, and the costs and benefits of developing new data sources. This review would compare per capita income, which is usually used for this purpose, and the Treasury Department's measure of total taxable resources.
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