Report 2002-123.2 Summary - August 2003

Federal Funds:

The State of California Takes Advantage of Available Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource

HIGHLIGHTS

Our review of federal grant funding received by California found that:

  • California's share of nationwide grant funding, at 11.8 percent, was only slightly below its 12 percent share of the U.S. population.
  • Factors beyond the State's control, such as demographics, explain much of California's relatively low share of 10 large grants.
  • Grant formulas using out-of-date statistics reduced California's award share for another six grants.
  • In a few cases, California policies limit federal funding, but the effect on program participants may outweigh funding considerations.
  • California could increase its federal funding in some cases, but would have to spend more state funds to do so.
  • In some instances, California has lost federal funds because of its noncompliance with program guidelines or by not using funds while they are available.
  • The statewide hiring freeze and a pending 10 percent cut in personnel costs may further limit federal funds for staff.

RESULTS IN BRIEF

Overall, California's share of total federal grant awards is slightly less than its 12 percent share of the nation's population (population share). During fiscal year 2001-02, California received $42.7 billion, or 11.8 percent of the total amount of federal grants awarded. We reviewed the 86 grants accounting for 90 percent of total nationwide federal grant awards in fiscal year 2001-02. California's share of 50 of these grants exceeded 12 percent, providing $4.9 billion more than an allocation based on population share alone. California's share of the remaining 36 grants was $5.3 billion less than an allocation based on population share alone. Several factors come into play when the federal government awards federal grants. Some are under the State's control and some are not. Grants where California's share falls below its population percentage include the following:

  • Grants where demographics work against California. Of the 36 grants where the State's share of grant awards fell below its population share, 10 are explained by California's low share of a particular demographic group, most notably its low rural and elderly populations.
  • Grants where the selected factors are unfavorable to the State. Many federal formulas for the Highway Planning and Construction grant (highway grant) do not favor California, which paid an average of 10.1 percent of the nation's federal fuel taxes and fees during federal fiscal years 1998 through 2001, but received only an average of 9.3 percent of the highway grant.
  • Grants with formulas that use out-of-date statistics or include minimum funding levels for each state. For example, much of a grant for maternal and child health services is distributed according to a 1983 allocation for earlier programs, when California's share was only 5.8 percent.

Federal funds also are limited by state and local policies for which benefits may outweigh the loss of funding. California's share of the Special Education-Grants to States (Special Education) grant, for example, is less than would be expected given its number of children because of assessment practices and rigorous screening of children being considered for special education services. Also, California's federal funding for the In-Home Supportive Services program is less than it could be because the State of California (State) pays legally responsible relatives to be caregivers, a type of activity that is ineligible for federal reimbursement.

In other cases, the State could increase its federal funding, but would have to spend more state dollars to do so. Some federal dollars have been lost because departments could not obtain the required state matching funds. For example, the Department of Health Services (Health Services) lost federal funds for a component of the Medical Assistance program due to the lack of matching funds. Other federal money has been lost because according to some state agencies they have lacked the staff to apply for or administer the federal programs. In addition, local agencies could risk losing federal funds because of a drop in state funding for transportation projects.

The State has not complied with some program guidelines, resulting in other losses of federal funds over the last three years. In addition, departments sometimes lose federal funds by failing to obligate the funds within a grant's period of availability. The largest such loss was about $1.45 billion lost to California's State Children's Health Insurance Program because of a slow start-up of the program. Since 1998, California also has paid penalties to the federal government for failing to implement a statewide child support automation system. Finally, the statewide hiring freeze has limited agencies from spending available federal funds on grants staff, and a pending budget cut of 10 percent in personnel costs may further limit federal funds for staff.

RECOMMENDATIONS

As federal grants are brought up for reauthorization, the Legislature, in conjunction with the California congressional delegation, may wish to petition Congress to revise grant formulas that use out-of-date statistics to determine the share of grants awarded to the states.

The Legislature may wish to ask departments to provide information related to the impact on federal program funding when it considers cuts in General Fund appropriations.

Health Services should continue to work with the Department of Social Services to determine the feasibility of pursuing an Independence Plus waiver that may allow the State to claim federal reimbursement for a portion of the expenditures for caregiver services provided by family members to participants in the In-Home Supportive Services program.

The Department of Finance should ensure that it considers the loss of federal funding before implementing personnel reductions related to departments' 10 percent reduction plans.

AGENCY COMMENTS

The agencies we reviewed generally agreed with the report's findings and recommendations. The California Department of Education chose not to formally respond to the report.


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