Federal Seed Money:

More Careful Selection and Application Needed

GGD-78-78: Published: Jun 22, 1979. Publicly Released: Jun 22, 1979.

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The Federal Government uses seed money programs to help State and local governments initiate projects and services that they might not provide on their own. The projects are started with the presumption that Federal funding can end and be replaced with State, local, and other funding sources to continue the projects. In fiscal year 1977 such programs accounted for about $2 billion in Federal assistance and funded emergency medical services, community mental health centers (CMHC), vocational rehabilitation training services, urban rat control, alcoholism and drug abuse rehabilitation, rural health initiatives, rural public transportation, childhood lead-based paint poisoning prevention, law enforcement, and boating safety programs. The process of selecting programs to receive Federal seed money could not be clearly identified and the programs appear to have started somewhat randomly. The Congress has chosen this approach for some programs, and Federal executive agencies have applied it by administrative action for others.

Seed money programs have generated some self-sustaining projects. However, some projects were reduced or discontinued when Federal support ended, as was the case for 81 percent of the projects in two of the programs. Many other projects have been funded longer than initially planned because Federal officials fear they would otherwise be reduced or discontinued. Almost all of these projects were still being federally funded at the time of the review, and officials at 16 of the projects said that the projects would be reduced or discontinued if funding ended. Some State and local officials said they felt trapped by seed money programs, while others referred to it as a form of "blackmail," feeling pressured by special interest groups to use available Federal seed money which create State or local funding commitments. Furthermore, State and local governments have not planned to assume the costs of projects for which Federal funds are phasing out since the projects were not channeled through them. As a result States and localities have increased their efforts to control incoming Federal funds, and many said they were taking steps to become more informed about future effects of accepting Federal funds. The Office of Management and Budget project notification and review process offers a way to deal with these problems by providing a means for early contact between applicants for Federal assistance and parties that might be affected by the planned activities. Affected parties can comment and perhaps effect changes before the application is completed.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: When the seed money approach has been implemented by the administrative action of Federal executive agencies, the Congress should, as part of its normal oversight processes, see that the approach is appropriate. When the seed money approach is used in new programs, the Congress should clearly express Federal funding intentions and emphasize the need for cost assumption planning. Cost assumption planning cannot be expected to result in the continuation of all seed money projects, but it should enhance the prospects for continuing worthwhile projects.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Director of the Office of Management and Budget should strengthen seed money program implementation by requiring Federal agencies and grantees to begin with clear agreements on the length and amount of Federal funding. The Director also should require the applicant to identify potential future funding sources through the grant application process and the A-95 process. Preliminary agreement on the need for proposed projects should be reached with the potential funding sources before the award of the grant.

    Agency Affected:


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