The Next Federal Grant System
The stimulus law's transparency requirements won't shed much light on the achievement of objectives.
One of the most salutary consequences of the Recovery Act has been the renewed focus it placed on the design and management of federal grants. With over $450 billion in federal spending, state and local governments rely on grants for 25 percent of their receipts. Often, the influence of most federal assistance programs on state and local policies goes well beyond the money thanks to the many strings and mandates attached.
Congress and the administration have crafted an implicit model for grants management under the stimulus package that could survive to become the new framework for the future. Federal officials have defined procedures to track the number of jobs created and the spending under each program. New provisions will require Recovery Act money to be accounted for separately from other federal grants, or from state and local money. The administration has involved federal auditors in the development of controls to reduce fraud and abuse and to monitor the spending of the funds. The data reported for these programs will focus primarily on these kinds of inputs, less so on the outcomes achieved or long-term economic growth.
The focus on inputs and process is understandable. The number of jobs created, for instance, is an input measure that can also serve as an outcome measure for a federal program designed to jumpstart the economy. Since, however, the quick disbursement and expenditure of grants are critical to economic stimulus, federal officials appropriately worried that emphasis on speed might lead to waste, fraud and abuse, justifying a more central role for auditors at the outset.
For most programs, however, accountability for the impacts of grants on long-term performance goals is not emphasized. This is true both for Recovery Act programs and for most other federal grant programs outside the Recovery Act itself. Only part of this limitation is due to accountability requirements themselves. Rather, most federal grants -- including the nearly 300 Recovery Act grants -- are too narrowly defined to reach to the broader outcomes that federal officials intended. For instance, there are more than 60 job-training programs alone throughout the universe of federal assistance programs. Achieving the performance goal of placing people in jobs typically involves several of these programs (in addition to grant-funded child care and other support programs).
Mark Muro at Brookings illustrates the highly compartmentalized and narrow grant system by pointing out the 30 separate program silos within the Recovery Act -- each with its own separate funding restrictions and requirements -- that are available to fund just one individual city's residential energy retrofit program. The transparency requirements of the Recovery Act may provide a quantum leap of new information to the public on specific programs, but it will not capture the synergistic use of these programs to achieve broader, community-wide objectives.
As the new administration and Congress fashion a more activist federal agenda -- whether the goal is achieving greater health care coverage or more effective environmental programs -- federal officials will centralize grant programs by defining goals in more measurable outcome oriented terms. Unlike previous eras of federal grants, the emphasis on devolution will be reversed, favoring instead strategies of gaining new federal leverage over state and local delivery systems and incentives. What does this drive toward federally defined outcomes imply for grant design and management?
Several features come to mind:
o Performance standards and goals will increasingly come to characterize federal grant programs, reflecting the broader push for performance management at all levels of government. Both Congress and the president will press to define expectations for performance in measurable terms. The performance-management ethos has taken root within federal agencies since the passage of the Government Performance and Results Act of 1993 and has been augmented by OMB initiatives such as the Program Assessment Rating Tool.
o Long-term outcomes will increasingly define performance accountability for grant programs. The Recovery Act's focus on jobs, while appropriate for a stimulus, will be replaced by a set of more sophisticated metrics to capture the broader impact states and localities will be on the hot seat to deliver on these federal performance targets, even when federal money provides only a minor share of total financial support for program initiatives, as it does for education under No Child Left Behind, for instance.
o Federal accountability models may increasingly define consequences for failing to deliver on these broader goals. Traditionally, the withholding of federal grant funds has been the principal enforcement tool of federal officials -- a self-defeating one, since it punishes the very clients the programs are trying to help. Instead, state and local institutions will come to face real consequences from failing to deliver on performance goals for clients, as we have seen with the No Child Left Behind Act. Under these models, federal rules may come to prescribe alternative approaches and institutions to provide services to clients when state national performance targets are missed. This is the model deployed by No Child Left Behind: Schools face real consequences when their students fail to pass federally required tests including loss of students to other schools and possible takeover by the state.
o Federal officials will utilize new competitive grant models to gain greater leverage over performance outcomes. For instance, under the Recovery Act the secretary of education was given a $5 billion fund to reward exemplary states whose education programs stood the best chance of achieving discrete federal objectives -- "race to the top" grants. Unlike formula grants, competitive selection can give federal officials new influence over an entire field of practice, if the federal money is significant enough to motivate the behavior of prospective grantees.
An important caveat is order. Performance-based grants are one of those many things in public administration that is easier said than done. There is a tension between the narrow confines of federal categorical grants and performance-based outcomes. As noted above, most grant programs are too narrow to capture the underlying outcomes that they are driving; thus, the real outcomes will be defined not by the programs' requirements but by how local officials package different categorical programs to address broader community-level problems.
Chuck Half, assistant to the mayor of Pittsburgh, illustrates the difficulty of capturing collective performance by multiple grants using the example of installing new high-visibility, energy-saving LED lights on the city's streets. The real performance outcomes of this innovation are to save energy and improve public safety -- outcomes well beyond the confines of the federal highway grants that partially funded the improvements. In fact, for many program areas, federal funds constitute the minor share of funding compared with state and local financing. This example illustrates how difficult it will be for a single federal office to specify outcomes of narrow programs dropped into a complex system, just as difficult as it will be for the public to figure out how these programs affect outcomes they care about.
This suggests that defining performance outcomes for grants in a federal system must be done through collaboration among federal, state and local governments. Whether the outcomes are achieving greener buildings, mitigating the dangers of wildfires or cleaning up waters in Chesapeake Bay, federal officials must rely on state and local officials who have the authority, expertise and political support necessary to achieve these goals. A unilateral federal prescription of goals will likely fall short, prompting outright resistance or hidden forms of diversion and distortion. The failed attempt by Congress to impose standards for hardening state drivers' licenses under the Real ID Act is instructive: A centralized, top-down model resulted not in state changes but in state resistance to a large new unfunded federal mandate.
New models for grant programs may well become necessary to implement performance-based accountability concepts in a collaborative manner. Gaining the buy-in and support of state and local governments may be realized through such innovations as the performance partnership model. As piloted by EPA, such an approach provides for greater focus on specific federal performance goals in exchange for greater flexibility for grantees in determining how such goals will be accomplished. EPA was able to get congressional support to enable states to move money across federal program boundaries in exchange for heightened state responsibility for negotiated lists of performance targets. Ultimately, even when federal officials wish to impose more centralized performance goals, the success of these initiatives will rest on whether state and local governments support and participate in the formulation of these national goals.