Chapter 11
Using Grants to Achieve Public Purposes
Sean Nicholson-Crotty
In 2012, the US federal government gave more than $600 billion in grants-in-aid to state and local governments. Approximately 80 percent of this funding was distributed under the five largest grants, with the remainder spread across approximately one thousand additional programs.1 These vary dramatically in the mechanism by which allocations are determined and the restrictions imposed on jurisdictions that receive federal funds. The prevalence of the various types of grants and the discretion that state and local governments have to spend those monies have also varied over time, depending on the preferences and capacities of national and subnational actors.
Regardless of the grant, federal monies typically come with significant requirements that recipients must comply with before, during, and after the expenditure of funds. These include adherence to detailed and often program-specific application procedures and guidelines; flow-down requirements that mandate the behavior of not only recipients but also the entities they contract with; transparency requirements, which require the collection and reporting of data on how funds are (or will be) spent; and performance measurement and management standards that require jurisdiction to track and, it is hoped, maximize the outcomes of grant-funded programs. In addition to these administrative burdens, grants create a certain degree of fiscal uncertainty for recipient jurisdictions because annual allocations, and even the programs themselves, can vary quite dramatically from year to year.
So while federal grants provide indispensable resources to often cash-strapped state and local agencies and programming, they also represent numerous challenges from a management perspective. While there is a fairly cohesive body of work on the political motivations that drive the design, distribution, and expenditure of federal grants, researchers have not assembled a coherent list of the challenges faced by those tasked with spending that money. Instead, insights on the subject are spread across work on public budgeting, contracting, performance management, and others.
This chapter draws together some of these insights in order to provide an account of the grant-in-aid system, the administration challenges that it presents administrators, and the ways in which those challenges have been addressed that will be useful for public managers who receive grants-in-aid. First, it reviews the characteristics and scope of the grant-in-aid system, with special attention to the importance of that system to various state and local public agencies and purposes. Next, it reviews the literature concerned with the political side of fiscal federalism, including the motivations for the design and distribution of grants by federal actors, as well as the factors that influence applications for and expenditure of grants by subnational governments. This information is important to any story of grants and management, because the types of challenges faced by state and local public managers who interface with the grant-in-aid system will be, at least in part, a function of the decisions political principals make regarding that same system. Finally, the chapter assesses the major problems that managers face when they use federal grants to fund programs and the responses to those problems identified in the literature.
Scope and Mechanisms of the Grant-in-Aid System
The size of the grant-in-aid system in raw dollars is large and equally significant when measured by other metrics. For example, in 2012, grants constituted 17 percent of total federal outlays and 4 percent of GDP.2 They also accounted for 25 percent of expenditures in the average state and typically constituted the second largest category of revenue.3 The reliance of local governments on federal largess is also significant. While they receive only 4 percent of revenue directly from Washington, on average, they receive a tremendous amount of pass-through funds, or federal grants distributed to local governments (or nonprofit entities) through the states. Indeed, the Government Accountability Office (GAO) estimates that $79.6 billion, or 13 percent of total federal grants, was distributed first to a state recipient and then awarded to a local government.4
Those average figures mask significant variation in the reliance of specific agencies and programs on grant funding. Recent research suggests that over 75 percent of state-level agencies receive some funding from federal grants, but the degree of dependence on federal funds varies dramatically. Approximately 15 percent receive less than one-quarter of total revenue from grants, but interestingly, a roughly similar percentage receive over three-quarters from federal sources (Cho & Wright, 2007). Medicaid is the largest single grant program in the United States, so it is not surprising that health agencies typically receive the largest share of their budgets through grants-in-aid (Texas Legislative Budget Board, 2013). Some single-purpose agencies, such as those dedicated to early childhood education, receive as much as 90 percent of funding from grants, but these are atypical: they do not exist in every state and are often organized explicitly because of available grant funding.5 At the other end of the continuum, budgets for higher education agencies in the states are often made up of only 1 to 2 percent federal dollars.6
In addition to varying heavily in their dependence on federal funds, agencies and programs may also rely on very different types of grants-in-aid. Generally federal grants vary along three major dimensions: award mechanism, expenditure discretion, and recipient obligations. Before discussing these, I note another dimension along which grants have varied—the temporal. Despite numerous reform efforts, the evidence is fairly strong that the grant environment has become increasingly fragmented, complicated, and burdensome over time. This is in part due to the proliferation of categorical grants, which come not only with their own specific purposes but also, in many cases, with unique requirements. It is also due in part to cross-cutting requirements like those imposed by Government Performance and Results Act (GPRA) and other accountability reforms that impose additional requirements on all entities that receive federal monies.
The largest numbers of awards are distributed as project grants, which require an application from a recipient jurisdiction that outlines a set of activities to be funded or partially funded by the grant. The 2009 Race to the Top competition held by the US Department of Education was a high-profile example of this type of grant. In that case, only a handful of states received awards, and the size of the award was in large part a function of the changes to existing education policies (e.g., increased data collection, alternative personnel practices) proposed in the application.
Alternatively, the largest amount of federal grant funding is awarded through formulaic grants, where a jurisdiction's allocation of federal funds is determined primarily by its characteristics. Medicaid is the largest formulaic program in the nation, and the formula to determine the federal allocation is heavily influenced by the number of citizens living below a certain percentage of the federal poverty level and state wealth. Many formulaic awards also require an application from jurisdictions wishing to receive funds, but these are generally not competitive in the same way that project grants are.
The second major dimension along which federal grants vary is the discretion that recipients have when spending funds. The most prevalent type of grant is categorical, where the recipient jurisdiction is required to spend funds in a relatively targeted policy area. Medicaid and Title I Compensatory Education funds are prominent examples of categorical grants. In some programs, recipients can pursue additional discretion in the expenditure of funds through the use of 1115, 1915(b), or other types of waiver provided by the grantor, but for the most part, the boundaries of categorical expenditures are fairly narrow. Alternatively, block grants allow expenditure on a significantly broader set of programs, and, most important, recipients typically have greater discretion to choose the distribution of funds. Temporary Assistance for Needy Families (TANF) and the Community Development Block Grant (CDBG) are among the most prominent block grants. Though these types of grants became more politically popular in the 1980s, they still represent less than 20 percent of total grant awards (Finegold, Wherry, & Schardin, 2004). All block grants are distributed by formula, though some, like the CDBG, are then passed through to local jurisdictions on a competitive basis, depending on the state. The final category of grant is general revenue sharing. This involves the return to jurisdictions of a certain percentage of tax revenue, generally with no strings attached. Federal revenue sharing with the states began in 1972 but was abandoned in 1986. However, the vast majority of states continue to have revenue-sharing arrangements with municipal governments.
The final major dimension along which grants vary is the obligations that jurisdictions incur when they accept funds. Some of these obligations are procedural in nature (e.g., reporting, transparency). There are also monetary obligations, which vary dramatically depending on the type of grant funding. Most categorical grants come with a matching requirement that obligates the recipient to pay some portion of total program cost in return for federal payment of the remainder. For example, in 2013 the federal government paid 90 percent of interstate maintenance projects funded through the Highway Trust Fund, while the state was obligated to pay 10 percent. Alternatively, the state match rate was 20 percent for US Department of Transportation scenic byway grants and was as high as 50 percent for surface transportation research funds. Capital-intensive projects, or those with a relatively long time line, are also sometimes subject to a tapering or “delayed local contribution match,” where the federal government pays 100 percent of the cost at the outset but the local share increases over time.7
For the most part, block grants do not have a matching requirement, but they often require a maintenance of effort (MOE) agreement. MOEs vary in their specificity depending on the grant, but generally they are a commitment on the part of the recipient jurisdiction to continue using own source funds to provide a public good or service despite the receipt of federal funding. For example, the TANF block grant requires that states promise to continue spending at least 80 percent of what they spend on related programs in fiscal year 1994, before TANF was created. That percentage can be reduced to 75 percent if jurisdictions demonstrate performance improvements that allow comparable programming at a lower cost.8 Even in the absence of an explicit matching or MOE requirement, federal funds are typically designed to supplement rather than supplant existing expenditures in a given area, though there is persistent evidence that state and local governments routinely use grants to replace own-source funds (Hines & Thaler, 1995; Nicholson-Crotty, 2008).
The Politics of Grant Distribution
Ultimately this chapter is concerned with the administrative challenges that grants pose for the managers of public agencies, but understanding the nature and extent of those challenges requires a recognition that the types and amounts of grant aid flowing to subnational agencies and programs are not random. They are instead a function of the preferences of national, state, and local government actors, as well as historical trends in the perceived role of grants. Understanding the political aspects of grant design and award makes the burdens imposed by different types of funds more predictable and, thus, more manageable. In order to facilitate that recognition, this section will briefly review the literature on those political and historical motivations.
Studies of the US federal government have demonstrated that grant allocations reflect shared party affiliations and are used to advance partisan agendas (Bickers & Stein, 2000). They have shown that members of Congress strategically use the distribution of federal monies to discourage challengers and that presidents use allocations tactically in order to reward states that supported them electorally (Bickers & Stein, 1996). Research at the national level has demonstrated that parties, as well as individual incumbents, use grant funds to win votes in swing states or districts (Dixit & Londregan, 1996). At its core, this research suggests that national politicians use grants to buy the support of voters, politicians, and interest groups in important jurisdictions (Grossman, 1994). In a related argument, some authors suggest that federal agencies anticipate when valued members of Congress are at risk and distribute funds to their districts in order to retain allies in the legislature (Arnold, 1979).
Scholars have also provided evidence that grant type, as well as amount and recipient, is often manipulated by national actors for political gain. Research suggests that these actors choose categorical grants laden with expenditure restrictions when they truly want to foster the growth of the role of the national government in a policy area and choose block grants instead when devolution of authority or an overall reduction in program size is the actual goal (Posner, 1996). Other work suggests that national politicians beholden to liberal constituencies will favor spatially specific programs (e.g., road construction), while those with conservative or Republican constituents prefer spatially nonspecific grants (e.g., veterans' benefits) (Bickers & Stein, 2000).
Another body of work, significantly smaller, focuses on demand-side explanations for grant distribution. An older but nonetheless influential body of work suggests that the most important decisions regarding the receipt and expenditure of federal grants are made by program administrators within granting and recipient agencies. This notion of “picket-fence” federalism envisions vertical linkages between these administrators at the state and local levels and their counterparts in federal agencies. These linkages allow shared functional, rather than political, preferences to dominate the grant-in-aid system (Bowman, 1985; Krane, 1993). Numerous studies have also demonstrated that the demand or need for a public good within a jurisdiction—typically proxied with constituent characteristics—influences the amount of federal money it receives (Rich, 1989). These jurisdiction-centered studies have also emphasized the significant role that grantsmanship, or experience with and capacity to engage the grant-in-aid system, has on allocation patterns (Collins & Gerber, 2008). Finally, scholars have begun to argue that much of the action in US federalism occurs in negotiations between national and subnational executives. Executive federalism suggests that the scope and character of federal programs implemented in the states are increasingly determined not by eligibility and benefit decisions made by legislatures, but by the implementation discretion sought by governors and granted by federal agencies (Gais & Fosset, 2005).
While the specific distribution of political power at the national and subnational levels of government certainly helps to explain patterns in the amount and type of federal aid, there are also issues regarding the purpose of fiscal federalism that contribute to that explanation. In a 1977 report, the US Advisory Commission on Intergovernmental Relations (ACIR) argued that “the development of American federalism since the Civil War . . . is in large part the story of an expanding system of categorical aids” (Advisory Council on Intergovernmental Relation, 1977b, p. 49).
These funds have always come with a long list of federally mandated restrictions and requirements and have always served as a tool to centralize and consolidate power at the national level. Scholars have suggested that this type of intergovernmental relationship flourished because state and local governments lacked the fiscal capacity to deliver goods and services desired by constituents and because the federal government recognized the need to correct negative spillovers from subnational activities (or the lack thereof) (Break, 1967). They have also suggested that categorical grants are preferred by interest groups, which often see federal funding coupled with subnational administration as the best way to accomplish policy goals; legislators, who see them as a source of electoral capital; and national advocates, who distrust states and local governments to address the needs of citizens competently and compassionately.
The fiscal capacity of state and local governments has increased immensely since the ACIR issued the report mentioned above, as has the political currency of devolution, or the decentralization of power and authority in the US federal system. The justification for the centralizing influence of categorical grants has waned in the past thirty years and, not coincidentally, rhetorical support for less restrictive forms of aid has increased. The number of block grants has increased, particularly under President Regan's administration, which championed the consolidation of seventy-seven categorical grants into nine block grants. In addition, the federal government has undertaken several reform efforts to reduce the administrative burden of the grant-in-aid system on recipients (Shapek, 1981). For the most part, however, these changes have not dramatically altered the federal aid system or reduced the trend toward centralization because the incentives underlying fiscal federalism have not changed fundamentally (Posner, 1996). Thus, the trend toward a greater number of categorical grants with more restrictions and requirements is as evident now as it was in the 1970s. Indeed, the increased focus on accountability and performance monitoring in federally funded programs has likely increased the administrative burden associated with federal grants (Hall & Jennings, 2011).9
Managing Federal Grants-in-Aid
The accountability, transparency, and compliance requirements associated with aid constitute the greatest challenge for public managers who oversee agencies and programs funded by grant dollars. This section describes those requirements and understanding the ways in which managers deal with them.
Administrative Requirements and Reform Efforts over Time
The burdens imposed on state and local managers by federal grants-in-aid have long been recognized. Soon after the exponential growth in categorical grants—along with the programs, special districts, and new subnational functions that they funded—the federal government became concerned that state and local governments were becoming overwhelmed by the complexities of administering these funds. The GAO and an interagency task force between the Office of Management and Budget (OMB) and National Science Foundation took the lead in identifying burdens placed on state and local governments and recommending that the federal government spend more on technical assistance and guidance to augment subnational management capacity. Concerned by what he perceived as a grant system that remained confusing and cumbersome, President Carter took significant executive action, including issuing a 1977 memorandum to agencies entitled “Cutting Red Tape for State and Local Grant Recipients” in an attempt to stream line the process (Shapek, 1981). The Paperwork Reduction Acts of 1980 and 1995 similarly sought to reduce the burden on jurisdictions (and other entities) applying for and using federal grants.10
Despite these changes, the administrative burden of federal grants has at best remained unchanged in recent decades (Cho & Wright, 2007). In part this is due to the countervailing accountability requirements that were often being enacted contemporaneously with reforms designed to make grants administration more manageable. While President Carter was issuing memoranda ordering agencies to cut red tape for and encourage more participation from grant recipients, his secretary of health, education, and welfare was undertaking a set of administrative actions designed to increase accountability and performance in grants issued by his agency.11 These included memoranda directed at recipients, stressing that they would be responsible for maintaining the accounting and auditing capabilities necessary to ensure the responsible expenditure of federal monies (Shapek, 1981).
The 1993 Government Performance and Results Act (GPRA), which was implemented at roughly the same time as the second Paperwork Reduction Act, also contributed indirectly to the administrative burdens associated with federal funding. GPRA required that federal agencies “establish performance goals to define the level of performance” and also “establish performance indicators to be used in measuring relevant outputs, service levels, and outcomes.”12 While these requirements bore directly on federal agencies and programs, those agencies mandated far-reaching performance measurement and data collection requirements for grantees so that they could comply with the new law.
Technically GPRA is a cross-cutting requirement—a law that must be complied with for the receipt of federal funds regardless of the program and in addition to any program-specific regulations. Other major examples of cross-cutting requirements include the Americans with Disabilities Act, the Clean Air Act, and the Equal Employment Opportunity Executive Order (11246). This part of the administrative burden of federal funds also does not appear to have diminished over time. In 1979, a scholar estimated that the average grant was subject to thirty cross-cutting requirements. No one has made a similar estimate in recent years, but a quick look at the narrowly targeted Safe Drinking Water revolving fund reveals that in 2011, jurisdictions had to demonstrate compliance with twenty-five more general federal laws in order to be eligible to receive funds.13
Returning to the issue of program-specific regulations, there is evidence that the Obama administration is still thinking about the burden placed on grant recipients, but also that any streamlining of the grants administration process is likely to be offset by increased regulation in other areas. Consider, for example, recent regulations promulgated by the OMB.14 The new regulation looks as if it should considerably lessen the administrative burden on recipients on some dimensions. For example, it consolidates existing regulations and eliminates overlapping and sometimes conflicting guidance in previous OMB circulars. It also reduces compliance requirements, in some cases allowing recipients to request waivers to further reduce burdens. It limits the application of federal cost accounting standards and the practice of targeted audits to larger awards. Furthermore, it streamlines the process by which recipients can make changes to disclosure and accounting practices and reduces restrictions on the purchase of technology.
Despite these examples of relaxation, however, the guidance also imposes new requirements on jurisdictions. As an example, the compliance waivers noted above will be granted only to recipients that have changed program designs in ways that the grantor believes increase cost-effectiveness, encourage collaboration, and encourage innovations such as pay-for-performance. Moreover, the new OMB guidelines increase the responsibility of grantees for safeguarding personal data and require state and local pass-through agencies to vet subawardees using the Federal Awardee Performance Integrity Information System.
So despite persistent concerns about the problem, the administrative burden associated with federal grants is high and will likely remain so for the foreseeable future. It might be helpful now to get a more detailed picture of expectations as articulated by grantor and pass-through agencies. It is impossible, of course, to provide a comprehensive accounting of the regulations and restrictions associated with federal grants because they vary dramatically across awards. A purposive sampling of federal, state, and local documents can, however, give a workable picture of the complexities recipients face. The following description is created from an amalgamation of advisory documents issued by Virginia's Department of Emergency Management (VDEM), the Illinois State Board of Education (ISBE), the Grants Management Division of the City of Norfolk, US Housing and Urban Development (HUD), and the US Department of Energy (DOE).15
Requirements in the Modern Grant-in-Aid System
Requirements and responsibilities generally fall into categories: award stipulations, compliance and reporting, accounting, closeout procedures, and audits/monitoring. Among other things, award procedures typically focus on method and timing of federal disbursements, the permissibility of precontract expenditures, and the speed with which grant-funded programs must be operational. As an example, grantees receiving pass-through or state emergency management funds in Virginia cannot claim any expenditures that occur before the receipt of the signed contract award and must seek a waiver from VDEM if activities will begin more than sixty days after the award has been made.
Not surprising, accounting, reporting, monitoring, compliance, and auditing requirements are often closely related subjects in grants administration. Typically grantees are advised to adopt stringent financial management systems if they do not already have such systems in place. For example, HUD spends eleven pages detailing for CDBG awardees the internal financial controls, accounting records systems, allowable cost determination mechanisms, budget controls, cash management procedures, financial reporting capabilities, and audit history that it considers to be the minimum sufficient threshold for the successful management of CDBG funds.
Granting and pass-through agencies also clearly believe that many recipients lack the sophisticated payroll systems necessary to pay wages under federal grants and an adequate understanding of federal labor law. The City of Norfolk hosts a webinar for recipients warning that in order to remain in compliance with federal regulations, jurisdictions will most likely need to adopt a “labor distribution system” that can automatically charge direct and indirect labor costs to appropriate grants and contracts. Moreover, the grants division reminds them that they will need to be able to produce a quarterly accounting of these costs, along with other financial and performance information, during the award period. Finally, the city offers a thirty-six-page guide for subrecipients and contractors on the meaning and implementation of the Davis-Bacon Act and the federal prevailing wage standard. The DOE produced an even longer document on prevailing wage laws for grantees and contractors receiving American Recovery and Reinvestment Act (ARRA) energy program funds.
Grant administration documentation also typically lays out a rigorous and hierarchical monitoring scheme for both federal and state funds. As an example, in its forty-nine-page document describing grant management procedures, the Illinois State Board of Education reminds districts that it is responsible for monitoring the expenditure of pass-through funds. To meet that responsibility, it lays out a sixteen-point audit procedure that it will conduct to ensure the proper accounting of funds, acceptable product and service delivery, and proper cataloguing of procured items and that payroll costs are properly documented, federal wage and employment standards are met, grants are closed out, and remaining assets properly disposed of. They also note that organizations receiving more than $500,000 must commission an external independent audit in compliance with a 2004 OMB directive. Finally, the document reminds districts that when they contract with entities to provide grant-funded goods and services, they (the local agency) are responsible for the same level of monitoring.
Obviously the requirements discussed are but a small sample of those faced by grant recipients and do not even touch on cross-cutting compliance, detailed performance measurement requirements, procurement, closeout procedures, or numerous other conditions. The review also completely ignores the burden of grant application, which is among the most consistent and significant concerns of potential grantees.16 As an (admittedly oversized) example of that burden, the Department of Education estimated that applications to the Race to the Top competition would take an average of 642 person-hours and be approximately one thousand pages long.
Managing the Administrative Burdens of Grants
The question then becomes, How do public managers in grant-funded agencies deal with those burdens? Answering that question is particularly important because failure to successfully manage grant requirements not only exposes agencies to significant liability in terms of penalties, grant cancellation, and limited eligibility for future awards, but can also significantly reduce the efficacy of grant funded programs. As HUD reminds CDBG awardees, “Regulatory compliance and performance go hand-in-hand.”17
Grantee Capacity
The scholarly research on grants management tends to agree with that assertion, suggesting that grant-funded programs are more successfully implemented in jurisdictions that have the capacity to deal with the administrative burden that accompanies those funds. What is meant by capacity varies, of course, but definitions usually share some core components: relevant technical skills, the existence and leveraging of relevant organizational experiences, adequate resources, the cognitive skills necessary to learn and adapt, and, most common, human capital or adequate personnel resources (see Howlett, 2009, for a review). These factors have been demonstrated to correlate with implementation success in federal, state, and local programs (May, 1993; McDermott, 2006). They have also been associated with the effectiveness with which jurisdictions receive and spend intergovernmental grants-in-aid (Collins & Gerber, 2008; Handly, 2008).
There is substantial variation in grants management capacity across subnational jurisdictions. Some enjoy a substantial amount—enough, in fact, to provide assistance to other governments and recipients that need grant aid. Numerous states, including Tennessee, Michigan, and Minnesota, are building or now maintain centralized grants management capability, housed in the office of financial management or elsewhere in the executive. Some of these provide a single point of entry for local governments and other entities interested in finding and applying for both federal and state aid. They also provide significant grant administration assistance, including guidelines for accounting, monitoring of subawardees, reporting, and other information necessary for compliance with state and federal laws.18 Some states, including Texas and New York, currently handle grants through individual agencies but have uniform standards that govern application, auditing, and other areas (Texas Governor's Office of Budget and Planning, 2004).19 Finally, some states allow agencies responsible for distributing a significant amount of state and federal money to maintain their own one-stop grants shops with somewhat different standards and processes that are nonetheless very high quality.20
Local governments also vary dramatically in their grants management capacity, and it is not always easy to predict by size alone. For example, New York City maintains a decentralized and fragmented management regime with the quantity and quality of information available to grantees varying dramatically by agency. Alternatively, midsized cities like Norfolk, Virginia, and Arlington, Texas, have developed one-stop grant management sites that rival those of many states.21
Grantor Guidance
For jurisdictions that lack grants management capacity, the important question is, How can they build or borrow it? The literature suggests numerous things that can help. The first of these is better and timelier guidance from the federal government. This was the solution that GAO, OMB, and others offered when they first became concerned about a capacity deficit among grant recipients, and it continues to be a prominent solution offered by federal officials to the quandary of grant effectiveness. The scholarly literature has confirmed that federal guidance and technical assistance can have a positive impact on the way in which jurisdictions define goals and engage in the day-to-day implementation of federal programs (Harris, 2010). The inverse also appears to be true, with the a lack of guidance, or even poor guidance, causing inaction among subnational jurisdictions (Balducchi & Wandner, 2008), variability and instability in the implementation of federal programs (Klarman, 1976), and reduced effectiveness in local decision making (Harris, 2010).
Despite concerns over its adequacy and evidence of its importance, however, the quality, quantity, and timeliness of federal guidance regarding grants-in-aid remain imperfect at best. Studies, including of ARRA (see Wyatt, 2009), have found that subnational recipients of federal mandates and grants would typically prefer a great deal more guidance than they receive). An administrator responsible for implementing ARRA energy programs, interviewed for a recent study (see Carly & Nicholson-Crotty, 2013), explained: “Within the state weatherization program, we waited a whole year to be able to expend any of those funds because we were waiting on some clarification on the Davis-Bacon language and what wages to pay for Davis-Bacon. Finally, a year after that, we still didn't have an answer.” Another admitted, “We would like to say that they [DOE] were kind of a mess. The only reason we say that is that a lot of times, we wouldn't get guidelines until like nine months after we implemented something . . . Some of the guidelines that would come out would be a one-page document.”
In addition to guidance related to compliance and reporting, the federal government has been engaged in building subnational capacity with technical assistance and, ironically, grants. There are certainly examples of communities using small grants to develop the human capital and technical expertise necessary to compete for and manage larger awards (Agranoff, 1986), and as the more than $4 billion distributed to help states build the health exchanges necessary for the implementation of the Affordable Care Act demonstrates, capacity-building grants continue to be a major tool for federal policymakers. Nonetheless, scholars have also demonstrated that these efforts are not always as welcome or successful as they might be (Brown, 1980). As an alternative to promoting grant management capacity among recipients by assisting local governments directly, the federal government increasingly gives grant funding to intermediary organizations. These organizations are typically nonprofits such as foundations or entities within universities, which are then tasked with distributing funds to governmental and nongovernmental recipients. The most important part of this arrangement is that intermediaries not only distribute funds but also assist with grant management and help local recipients build additional management capacity of their own (Shea, 2011).
Other tools can help governments that lack the capacity to manage the complexities of the grant-in-aid system. The best description of these activities is to be found in the literature on intergovernmental management (IGM), which is distinct from work on federalism in that it is concerned with the nexus between federal, state, and local actors in the delivery of public goods and services. It is different than intergovernmental relations because it focuses not simply on the interaction of these different levels of authority, but emphasizes the ways in which local managers use those interactions to address the challenges that accompany programs that are increasingly intergovernmental (Agranoff, 1986).22
Bargaining and Collaboration
The most important tools that local managers have in the intergovernmental context are bargaining and collaboration. Scholars have long noted that grants offer an opportunity for bargaining because of the interdependence of grantor and grantee (Pressman, 1975) and have demonstrated repeatedly that recipient jurisdictions often seek to change the terms and conditions of federal grant aid (see Agranoff & McGuire, 2004). The power of recipients in these negotiations comes from a couple of sources. First, federal officials need successful programs and are willing to accommodate local adaptations if such changes help ensure that success (see Pressman, 1975). Relatedly, the federal government needs subnational jurisdictions to embrace grant programs so that it can pursue goals with that policy tool (Agranoff, 2003). That is unlikely to happen if aid restrictions are too onerous, and so the national government may relinquish some control in order to maintain the viability of the program. Federal highways, No Child Left Behind, and 1115 Medicaid waivers are a few examples of successful subnational bargaining over grant conditions.
Collaboration with other jurisdictions is the other key tool that local governments can use to manage the challenges of intergovernmental implementation. In some cases, these partnerships allow low-capability jurisdictions to borrow capacity from those with greater resources (see McGuire, 2002). Other times, they reflect the fact that multijurisdictional programs require a networked rather than a hierarchical or single-agency management approach (see O'Toole, 1997). Generally, however, IGM scholars view collaborations as a solution to local problems created by state or federal programs, including those funded by grants.
These collaborations can take about as many forms as there are intergovernmental problems to solve, but have been loosely lumped under the heading of “intergovernmental bodies” (IGB) and are typified by nonhierarchical relationships between regional or metropolitan, state, local, and third-sector actors (Agranoff, 1986). The broader literature on collaboration notes that these types of coequal partnership are difficult to initiate and sustain (Huxam & Vangen, 2005), and the work on IGBs has similarly noted varying levels of success across intergovernmental collaborations. Early work on human service intergovernmental programming suggests that successful collaborations require that partners recognize and overcome the legal, jurisdictional, and political barriers to collaboration, that at least some partners have the expertise to deal with the technical issues that are likely to confront the group, and that the partnership remain focused on the problem it was created to solve (Agranoff & Lindsay, 1983). Work focusing on economic development has confirmed many of these insights and added that successful partnerships depend on the players budgeting the additional time and resources necessary for collaborative activity and giving managers the autonomy necessary to form and maintain relationships (Agranoff & McGuire, 2004).
Summary
The importance of federal grants to subnational jurisdictions is difficult to overestimate. As one assistant director of a Midwest health and human services agency, put it: “We wouldn't be able to do much of anything we do here without grants, at least not to the level we do it.” Obviously some agencies and programs are more reliant on grants that others, but the role of the grant-in-aid system in modern governance is hard to deny.
Another truism of grants is that they come with significant administrative burdens for recipient jurisdictions. Despite various reform efforts, these burdens remain high in part because of the political advantages and, thus proliferation of, categorical grants. Requirements imposed on grant recipients have also increased with the proliferation of general accountability efforts like the Government Performance Improvement and Results Act.
Administrative burdens for recipient jurisdictions can take many forms. However, the primary areas in which grant applicants and recipients need to develop capacity are in the development of resources necessary to produce successful applications, anticipate and meet award stipulations, comply with grant management and reporting requirements, maintain necessary accounting systems, comply with closeout procedures, and prepare adequately for postaward audits.
Throughout the evolution of the grant-in-aid system, concerns over these burdens and shifts in the political landscape have brought numerous efforts to reform and simplify the grants management process. Nevertheless, the trend has generally been toward more requirements and restrictions with which recipient jurisdictions must comply. The complexities of ARRA funds serve as a fitting capstone to this evolution.
The capacity of jurisdictions to deal with the administrative complexities of the grant-in-aid system varies widely. Some states and localities have invested heavily in such capacity and developed systems that can easily manage the accounting, reporting, performance, auditing, and other standards that typically accompany grant aid. Historically, however, most jurisdictions have lacked such capacity, and there continues to be a significant shortfall for most recipients.
Fortunately, there are numerous ways in which public managers (both in grantor and grantee agencies) can fill these capacity gaps. Most promising among these are more and higher-quality guidance from granting and pass-through agencies, the use of funding intermediaries that augment management capacity among recipients, bargaining to reduce the administrative burden associated with grants, and collaborating with higher-capacity jurisdictions that can help carry the administrative load.
There is some evidence regarding the relative success of these strategies, but there is much more to be learned about the ways in which public managers handle the administrative complexities associated with grants. For example, in response to a question regarding human capital and the administration of ARRA funds, an eastern energy administrator said that it had traditionally been quite difficult to increase the number of quality personnel to the level necessitated by large awards because of his state's rigid personnel rules. In response to ARRA, however, he said that his agency had secured a waiver that allowed it to pay benefits to full-time-equivalent employees hired with temporary grant funds, which improved the quality of those hired and the agency's ability to administer the award. There has not, to date, been a systematic evaluation of the human resources and other innovations that allow states to manage grants more effectively, but this anecdote suggests that such an accounting would be tremendously useful.