States and Localities Seek Voice in Federal Grants Overhaul

State and local officials are telling the feds that a new council designed to overhaul the grant process is leaving out an important stakeholder: grant recipients. This fall, Office of Management and Budget Director Jack Lew announced the creation of a new group -- the Council on Financial Assistance Reform -- tasked with identifying the best ways to deliver, oversee and report federal grants. The new council replaces two similar government boards. The intention is to streamline the federal grant process by eliminating unneeded regulation and reporting requirements. The effort is part of the president's larger campaign to cut waste that was announced in June.

But organizations representing state and local governments are miffed that they don't have an official voice on the council, which includes the OMB Controller and senior officials from nine federal agencies, but no governors or mayors. More than 80 percent of federal aid flows through states and localities, so they are well-positioned to give recommendations on how to improve the grant process, they argue. State and local governments received more than $600 billion in federal grants in the 2010 fiscal year, according to the OMB.

Leaders from all the major organizations representing state and local governments sent a letter to Lew in November, criticizing the feds' decision against officially including state and local officials on the council. They write that while they applaud the council's goals, the lack of state and local officials undermines the council’s work. "State and local governments have a wealth of experience and expertise gained from administering, funding and carrying out federal programs that are best shared through our direct participation in the council,” the groups wrote. 

[Update: this blog post was updated on Nov. 22 to include a conversation with Werfel]

OMB Controller Danny Werfel tells Governing that the council is, in fact, soliciting valuable feedback from state and local governments associations and including those groups in their discussions. But, he adds, the council was designed so that its members could talk among themselves about a range of ideas.

“[T]he litmus test for effective state collaboration is not whether a state entity is technically a member of a council or not,” Werfel said. “The litmus test is how that council effectively integrates external stakeholders into the policy development … and oversight process.”

The first new notice on grant procedures could be issues this spring, Werfel said. 

The push to reform the grant system comes on the heels of a June  report from the Government Accountability Office that highlighted many faults with the federal grant system. In many cases, federal agencies performed reviews that were intended to evaluate grant applicants only after they had been approved. And when agencies performed audits of the grant process, they often failed to implement changes to respond to the problems they noticed.