Federal Aid:

Revising Poverty Statistics Affects Fairness of Allocation Formulas

HEHS-94-165: Published: May 20, 1994. Publicly Released: May 20, 1994.

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Pursuant to a congressional request, GAO reviewed whether revisions in poverty statistics would affect the distribution of federal aid to state and local governments.

GAO found that: (1) federal grant allocation formulas should reflect the number of people potentially eligible for services, the cost of providing those services, and the ability of state and local taxpayers to fund services from state and local revenues; (2) although a better poverty count would enable policymakers to target federal aid where poor people have a greater need of services, adjusting poverty counts would improve only one dimension of state funding needs; (3) differences in states' funding capabilities and differences in the cost of services need to be taken into account to achieve fairness in the distribution of formula grants; and (4) a cost-of-living adjustment in the poverty count could add to the states' relatively high burden in funding the needs of the poor.

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