November 8, 1963
PAGE 21476
PERIODIC CONGRESSIONAL REVIEW OF FEDERAL GRANTS-IN-AID
Mr. MUSKIE Mr. President, on September 4, 30 Senators joined with me to introduce S. 2114, a bill to provide for periodic congressional review of future Federal grants-in-aid to States and to local units of government. In my remarks accompanying the introduction of this measure and in a subsequent address on October 31, I explained some of the more general reasons for my advocacy of this bill.
Additional arguments in support of S. 2114 -- especially as they relate to the fiscal aspects of grants-in-aid -- are found in a draft report on "The Role of Equalization in Federal Grants-in-Aid" which was recently considered by the Advisory Commission on Intergovernmental Relations, and in a study entitled "The Federal System as Seen by State and Local Officials: Results of a Questionnaire Dealing with Intergovernmental Relations," which is being prepared by the staff of the Subcommittee on Intergovernmental Relations.
Those two studies indicate some of the difficulties we will experience with respect to future grant programs. Most of the existing programs have two distinct, but coordinate, provisions which determine each State's share of Federal grant money. The allocation provision, or apportionment formula, relates to the manner in which the Federal appropriations for a particular program are apportioned among the recipient governments, provided the grant conditions are met. The matching provision pertains to the funds required to be raised by the States and sometimes by the local governments as their share of the aided program's cost. The operation of both provisions within existing grants-in-aid suggests that there are a number of fiscal problems with which congressional committees must periodically come to grips.
The question of whether an equalization factor should be included in these provisions also highlights the need for more careful congressional scrutiny. Since World War II, Congress has paid increasing attention to the question of whether the distribution of Federal grants should take into account differences in the capacities of the States to finance aided programs from their own resources. It is unlikely that the future will reverse this trend. The effort to give recognition to this factor has usually taken the form of attempting to compensate for the imbalance between the several States' differing program needs and their relative financial abilities to support these functions at certain desired levels. The decision to implement or not to implement this goal has significantly affected both the apportionment and matching provisions of most grants-in-aid. Congressional reassessment of future grants-in-aid, as provided in S. 2114, must take into consideration the fiscal and policy questions raised by the formulas under which these programs are financed.
Of these three problem areas, the allocation provision raises some of the more subtle challenges to test the wisdom of Congress. If the present is any guide for the future, the distribution of Federal funds for some programs will continue to be basically on an equal-share basis to each State, since 10 existing grants still employ a modified version of this formula with little recognition of differences in the size of the States or other indicators of differences in need.
When Federal grant programs do provide for the allotment of varying amounts of funds to each State on the basis of some indicated need criterion, various and sometimes confusing indexes are employed to establish the formula. Frequently, a program's needs are gaged by the population of the States, the population in totals, 4 relevant population groups, or some other service unit criterion as an index for determining the allocation of grant funds. In some cases the components of program costs are used as indicators of need. Of the 16 grant programs which at present use a financial need factor in the formula, 15 use per capita personal income as an index of the relative State fiscal capacity and the State-by-State distribution of funds is weighted accordingly, so as to offer more Federal funds to the poorer States.
To make matters more difficult, and again using the present as a basis for future predictions, only two-thirds of present Federal grant programs distributed their funds in fiscal 1962 on the basis of only one allocation method. Fifteen grant programs employed two basic grant formulas; two used three methods; and three distributed their funds on the basis of four methods. In many instances these varying formulas are necessary. At the same time, they provide many a headache for State and local officials attempting to participate in these programs. Witness the following observation of a State official to the Subcommittee on Intergovernmental Relations' question on this topic:
“The funds made available to [this department] have such complicated formulas, matching requirements, and reporting of expenditures that it is difficult for the budget analyst, the Governor and the legislature to understand the financing of these formulas. The program has not been dealt with in a satisfactory manner, and the budget office continually feels that it is at the mercy of the agency involved in the interpretation of these formulas and requirements.”
While many Federal grants have explicit statutory provisions spelling out in detail how the funds are to be allotted to the state and local government, some still permit a portion of the funds to be disbursed at the discretion of the Program Administrator. In practice, such discretionary authority has commonly been incorporated into administrative regulations which specify the formula for distributing the grant funds. Yet at present, a portion or all of the funds in eight grant programs are not distributed in accordance with a published allocation method. In discharging its mandate to periodically examine and reassess these programs then, Congress should take a closer look at these apportionment provisions and attempt to make the excessively rigid, more flexible; the needlessly intricate, more simple; the broadly discretionary, more specific; and the indices of need less susceptible to misinterpretation and suspicion.
The matching requirement provision or the lack thereof in the existing grants raises almost as many questions as the allocation formulas. In itself the fact that 13 aided programs do not require any State or local matching constitutes a fundamental reason for periodic reassessment of these programs by the pertinent legislative committees. In addition, among the grants-in-aid that do require State and local governments to share in program cost, we find that the dual method of determining cost share and requirements provides another subject for periodic congressional inquiry. Under existing arrangements there may be variable matching, whereby the proportion of total program cost borne by the State is determined on the basis of an index employed to measure relative State fiscal capacity, thus implementing the equalization objective. Alternatively, there may be a fixed ratio matching formula whereby the State and/or local government is required to share at the same proportion of program cost. The latter technique is employed at present in most Federal grant programs. For many, the fixed Federal share is 50 percent and for a few programs it is set at two-thirds, occasionally at three-fourths, and even at 90 percent of cost. Over 70 percent of the funds allocated in fiscal 1962 for Federal grants-in-aid were governed by a fixed ratio-matching formula.
Variable matching requirements are found exclusively in only seven grant programs at present, and partially in five. While constituting a form of equalization in that they recognize the varying abilities of the States and local governments to support these aided functions, the funds distributed on a variable matching formula basis accounted for only 17 percent of the more than $7 billion that was spent for grant programs during the fiscal year 1962.
There is evidence that the present grant formulas do not properly represent differences in the current national interest in the different programs, and understandably so. The programs were enacted at different times within a different climate of opinion, without in each instance due regard being given for the grant provisions of other, existing programs. Those State and local officials responding to the subcommittee questionnaire strongly favored congressional legislation which would make these formulas somewhat more uniform and standardize definitions used therein.
In light of these varying requirements, and this reaction from questionnaire respondents, Congress must probe more deeply into the entire question of matching provisions. Are the interests of the more well-to-do States protected when more than 12 percent of the funds allocated in 1962 were disbursed under grant programs with no matching requirements? Is equity achieved when more than 70 percent of these funds were distributed under a formula which provided for fixed ratio matching? These are questions of equal justice; they are questions of national policy. They are premised upon existing facts, but they will be with us in the future. Periodic review of future grants-in-aid could not ignore these issues, and the enactment of S. 2114 would help to guarantee their careful consideration.
Many of the difficulties that I have discussed in connection with apportionment and matching formulas relate to the broader problem of equalization. In some instances, this factor has been incorporated into programs that do not require it; in others, it has been inserted in a way that fails to accomplish the objectives of Congress. In still other programs, it has been ignored where changing conditions indicate a pressing need for its recognition. Of the Federal grants-in-aid now on the books, only about a third contain what might be he termed explicit fiscal equalization provisions. This means that the distribution of the moneys or the proportion of Federal-State sharing of program cost in these programs is governed in some measure by a recognition of the differences among the States' relative abilities to support the aided activities.
Detailed statistical analysis of these programs by the Advisory Commission on Intergovernmental Relations and others indicates that, though these programs are presumably geared to giving greater recognition to the difficulties that less well-to-do States have in financing them, these States have not always profited under them to the extent that some imagine. To put it more bluntly, Congress’ intent here with respect to ironing out some of the inequalities in the program levels among the States has not always been fully realized. On the other hand, with respect to certain other grants, there is strong evidence that the equalization factor should not always be extended to programs of a basically planning, demonstration, stimulation, or emergency nature. This differentiation is not always made at present, and future congressional reassessment of Federal grant-in-aid programs should carefully weigh the arguments developed by the Advisory Commission on this subject.
Congress in recent years has increasingly turned to categorical grant programs as a way of national participation in the provision of vital public services. The greater the number of the segments of public services which are aided through these categorical aids, the more urgent becomes the coordination of the grant programs and of assuring through periodic review that the provisions are in harmony with one another and that the objectives of the Congress in providing Federal aid are carried out in a consistent way from category to category.
Where equalization is appropriate, however, greater consideration should be given to more detailed analysis of the various indexes of program need and of the States' relative ability to support grant programs. Per capita personal income, for example, has some limitations as an accurate index of the relative capability of State and local governments to raise revenues. This and other indicators which have been used to implement the equalization ideal should be carefully reexamined by the Congress -- not with the view that perfect justice or complete uniformity can be attained, but in full recognition of the fact that the present inequities and existing lack of meaningful standards need correction. We must not permit future grants to be so characterized.
Mr. President, these are but a few of the fiscal problems that confront us in this area of Federal, governmental activity which accounts for more than $10 billion in this fiscal year, which includes at least 60 programs, and which gives every sign of expansion as we move into the final third of this century. Consistency, uniformity, and equity -- these should be our immediate goals in this difficult area of congressional oversight.
Enactment of S. 2114 would go far toward achieving these objectives. In attempting to determine whether future grant programs will be modified, redirected, terminated, or continued, congressional committees under this legislation, of necessity, would have to cope with some of these fiscal problems. All of us then would be compelled to focus our attention more regularly on the many dollars-and-cents difficulties that have arisen as a consequence of the sporadic and undirected development of these grant programs.
If we continue to ignore the trouble spots that have emerged in this field, the enemies of the grant-in-aid device will increase in number; their arguments will become more forceful; and the cooperative Federal ideal will be seriously impaired. I agree with those scholars who claim that this very practical device has been one of the major forces preserving our traditional system of American federalism. If we accept the proposition that this is 1 nation composed of 50 States -- not 50 States joined in loose confederation or a single State subdivided into 50 administrative units -- then the grant-in-aid must be strengthened.
Others may help us. The executive agencies can advise and conduct their own reassessment of grants-in-aid. The States and local governments can recommend improvements in various programs. In the final analysis, however, Congress alone has the task of legislative oversight and the power of the purse. We alone possess the proper instrumentalities, the authority, and, what is even more important, the requisite attitude since we represent the States and local districts, but serve as U.S. Senators and Representatives. Enactment of this legislation would be a significant and highly desirable step toward strengthening both the Congress and the Federal system and toward reasserting our traditional role of umpire among the 50 States.
In conclusion, Mr. President, I want to take this opportunity to announce that hearings on S. 2114 will begin on December 3 at 10:00 a.m. Any Senator or other person wishing to testify at the hearing should notify the subcommittee, room 357, Senate Office Building, extension 4718, in order that he might be scheduled as a witness.