Key Issues > Management of Federal Grants to State and Local Governments
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Management of Federal Grants to State and Local Governments

The federal government uses grants to achieve many national objectives by providing program funding to state and local governments. Especially in a time of fiscal constraints, it is critical to prevent or remedy problems in federal grant processes that affect their efficiency and effectiveness.

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To achieve national objectives, the federal government relies on complex networks and partnerships across federal, state, and local governments. Issues involving these intergovernmental relationships include the management of federal grants to state and local governments and the fiscal outlook of the state and local government sector.

Federal Grants to State & Local Governments

Grants are an important tool used by the federal government to provide program funding to state and local governments. According to the Office of Management and Budget, federal outlays for grants to state and local governments increased from $91 billion in fiscal year 1980 (about $225 billion in 2012 constant dollars) to about $545 billion in fiscal year 2012. See figure 1.

 

Figure 1: Total Federal Outlays for Grants to State and Local Governments, in 2012 Constant Dollars, Fiscal Years 1980-2012

Source: GAO analysis of OMB data.

Federal grants fund a wide range of programs and activities across state and local governments, including those related to social services, housing, education, transportation, health care, and man-made and natural disasters. Over time, growth in both the numbers of grant programs and levels of funding has created greater diversity and complexity in federal grants management processes. GAO has identified various strategies intended to address challenges to grants management effectiveness, oversight, and accountability. Strategies include:

State and Local Government Sector's Fiscal Outlook

Fiscal sustainability presents a national challenge shared by all levels of government. Given the nature of the partnership among levels of government in providing services to Americans and the economic interrelationships among levels of government, understanding potential future fiscal conditions of the state and local government sector is important for federal policymaking. To provide a broader perspective on our nation's fiscal outlook, GAO has developed a unique model to simulate fiscal outcomes for the entire state and local government sector for several decades into the future. GAO's simulation shows that the state and local government sector continues to face short- and long-term fiscal challenges, adding to the nation's overall fiscal challenges. The fiscal position of the sector will steadily decline through 2060 absent any policy changes. As shown in figure 2, state and local government expenditures rise considerably as a percentage of Gross Domestic Product over the simulation's time frame.

Figure 2: State and Local Government Action Required to Maintain Balance (Expenditures, as a Percentage of Gross Domestic Product)

Note: This figure was excerpted from GAO-13-546SP.

The primary driver of fiscal challenges for the state and local sector in the long term continues to be the projected growth in health-related costs, specifically state and local expenditures on Medicaid and the cost of health care compensation for state and local government employees and retirees. Declines in state and local pension asset values stemming from the 2007 to 2009 economic recession could also affect the sector's long-term fiscal position.

 

Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.

Federal Data Transparency:

Opportunities Remain to Incorporate Lessons Learned as Availability of Spending Data Increases
GAO-13-758:
Published: Sep 12, 2013. Publicly Released: Sep 12, 2013.

State and Local Governments' Fiscal Outlook:

April 2013 Update
GAO-13-546SP:
Published: Apr 29, 2013. Publicly Released: Apr 29, 2013.

Grants to State and Local Governments:

An Overview of Federal Funding Levels and Selected Challenges
GAO-12-1016:
Published: Sep 25, 2012. Publicly Released: Sep 25, 2012.

State and Local Government Pension Plans:

Economic Downturn Spurs Efforts to Address Costs and Sustainability
GAO-12-322:
Published: Mar 2, 2012. Publicly Released: Mar 2, 2012.

More Reports

Public Transportation:

Federal Role Key to Rural and Tribal Transit
GAO-14-589:
Published: Jun 24, 2014. Publicly Released: Jun 24, 2014.

Critical Infrastructure Protection:

More Comprehensive Planning Would Enhance the Cybersecurity of Public Safety Entities' Emerging Technology
GAO-14-125:
Published: Jan 28, 2014. Publicly Released: Jan 28, 2014.

Intermodal Transportation:

Justice Grant Programs:

Elder Justice:

More Federal Coordination and Public Awareness Needed
GAO-13-498:
Published: Jul 10, 2013. Publicly Released: Jul 10, 2013.

National Preparedness:

FEMA Has Made Progress, but Additional Steps Are Needed to Improve Grant Management and Assess Capabilities
GAO-13-637T:
Published: Jun 25, 2013. Publicly Released: Jun 25, 2013.

Grants Management:

National Preparedness:

FEMA Has Made Progress in Improving Grant Management and Assessing Capabilities, but Challenges Remain
GAO-13-456T:
Published: Mar 19, 2013. Publicly Released: Mar 19, 2013.

Child Welfare:

States Use Flexible Federal Funds, But Struggle to Meet Service Needs
GAO-13-170:
Published: Jan 30, 2013. Publicly Released: Jan 30, 2013.

Transportation:

Flexible Funding Continues to Play a Role in Supporting State and Local Transportation Priorities
GAO-13-19R:
Published: Nov 15, 2012. Publicly Released: Nov 15, 2012.
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    • Beryl Davis
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