Eye on the States: Crack the code on federal grants

Thomas Davies

Federal funding is the tail wagging state and local technology spending. Unlocking this money has become a major issue for many companies selling into this market, and with good reason: Federal aid to the states and their localities is more than $350 billion annually and more than 35 percent of all technology-related spending.

Where does this money come from, and where does it go? Most of it comes from five federal agencies: the departments of Agriculture, Education, Health and Human Services, Housing and Urban Development and Transportation. And most of it goes to health care, social services, education, housing and transportation services.

There is no one way to unlock these funds. Each grant is set up with specific rules. But here are five easy questions you should ask yourself as you try to solve the federal grant puzzle.

What is driving the growth in funding?

The drivers of federal grant funding typically are found in landmark legislation passed by Congress, such as the No Child Left Behind legislation in education, and the Temporary Assistance to Needy Families bill in social services. These bills place mandates upon state and local governments that lead to new program and technology requirements.

These mandates have a way of expanding over time. Since the late 1990s, aid from HHS to the states has grown more than 50 percent and now exceeds $200 billion annually.

What can funds be used for?

Each grant is designed to fulfill a very specific public policy goal, such as job training or community safety. The grants can be used only for these designated purposes, and typically cannot be reallocated for another use. For example, a grant for health care for the elderly and the disabled cannot be used for health care for children.

What are the different types of grants?

There are 15 types of assistance states and localities may receive from the federal government. Many of the largest are referred to as formula grants. These monies are allocated using a legislatively prescribed formula based on events such as levels of unemployment or enrollment.

Another common type is project grants, set up for specific periods of time or projects, such as constructing a new school.

Who receives the grant?

In many cases, the states are only the administrators of the grant, not the agency responsible for actually spending the funds.

For example, the Education Department makes available to the states a grant for education technology to help improve student achievement.

The rules are such that 95 percent of the grant awards to the states must, in turn, be passed along as subgrants to local education agencies.

What is the basis for disbursement of monies?

Each grant comes with a set of rules for disbursement of the money. These rules determine how the states and localities receive funding, and what they need to do to become eligible for it. Some grants are competitive, meaning not all states that apply will receive funding.

For example, the Homeland Security Department recently announced that all states will not get money they requested for security plans.

The plans the states developed are being treated as wish lists. Other homeland security grants are allocated based on considerations such as the population of the area, and are not competitively awarded.

Thomas Davies is senior vice president at Current Analysis in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

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