Federal grants help state and local governments finance many public services. But agencies must ensure effective management and oversight of these grants.
The federal government awards hundreds of billions of dollars in grants to state and local governments each year. These grants help finance a broad range of services, including health care, education, social services, infrastructure, and public safety.
Federal Grants to State and Local Governments and Medicaid, Fiscal Years 1980-2019
However, administering grants on this scale comes with a number of challenges, including:
- Streamlining. Grants management requirements that are duplicative, burdensome, and conflicting require federal agencies to expend unnecessary resources and can burden grant recipients. Streamlining grant requirements could help.
- Transparency. The Digital Accountability and Transparency Act of 2014 (DATA Act) required the Office of Management and Budget (OMB), the Department of the Treasury, and other federal agencies to increase the types of information available to the public on federal spending (including grants). Federal agencies have made progress in standardizing and expanding the data reported under this act, but there are still inconsistencies with the completeness and quality of the reported information. Additionally, grantees are required to publicly disclose the amount of federal grant funds they receive, but some agencies have not enforced this requirement. OMB and Treasury should prioritize improving DATA Act reporting.
- Duplication, overlap, and fragmentation. Assessing and avoiding duplication and overlap among grants before awarding them can help federal agencies save money and increase the efficiency of their grant programs.
- Internal controls and oversight. Reducing improper payments and more consistently closing out grants (in order to redirect or return unused funds) can help agencies improve grants oversight and accountability. The increased federal funding available due to the COVID-19 pandemic has also amplified the need to effectively oversee federal grants.
Understanding current and future trends in the fiscal condition of the state and local government sector can help federal policymakers determine how to best allocate federal grants. GAO’s model provides a broader perspective on the nation's fiscal outlook by simulating fiscal outcomes for the state and local government sector. For instance, these governments face fiscal challenges due to the growth in healthcare costs. State and local Medicaid expenditures and the cost of health care compensation for state and local government employees and retirees are projected to grow at a rate that exceeds the country’s GDP.
Expenditures of State and Local Governments as a Percentage of GDP
2021 Annual Report: New Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Billions in Financial Benefits
2020 Annual report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Billions in Financial Benefits
Intergovernmental Issues: Key Trends and Issues Regarding State and Local Sector Finances
The Nation's Fiscal Health: Action Is Needed to Address the Federal Government's Fiscal Future
State and Local Governments' Fiscal Outlook: 2019 Update
Data Act: Quality of Data Submissions Has Improved but Further Action Is Needed to Disclose Known Data Limitations
Grants Management: Agency Action Required to Ensure Grantees Identify Federal Contribution Amounts
Grants Management: Observations on Challenges and Opportunities for Reform
Grants Management: Selected Agencies Should Clarify Merit-Based Award Criteria and Provide Guidance for Reviewing Potentially Duplicative Awards
Tiered Evidence Grants: Opportunities Exist to Share Lessons from Early Implementation and Inform Future Federal Efforts
Grants Management: Actions Needed to Address Persistent Grant Closeout Timeliness and Undisbursed Balance Issues
Affordable Rental Housing: Assistance Is Provided by Federal, State, and Local Programs, but There Is Incomplete Information on Collective Performance