providing a mechanism for addressing changes in need and other formula components without Congress having to revisit the issue annually, formula-based allocations can help build consensus for and the credibility of a program. Use of a formula (rather than a possibly arbitrary specification of amounts to be given to recipient jurisdictions) facilitates informed debate and a degree of transparency about the allocation process by providing documentation of assumptions and computations. Furthermore, a formula offers legislators an effective way of explaining the allocation process to their constituents. However, when funds are allocated according to a formula, there is no guarantee that objectives will be fully met. In particular, properties of data sources and statistical procedures used to produce formula inputs can interact in complex ways with formula features to produce consequences that may not have been anticipated or intended.
This report identifies key issues concerning the design and use of formulas for fund allocation and advances recommendations for improving the process. Most of the panel’s conclusions and recommendations fall into one of two overlapping sets: the first pertains to issues created by the interaction between the political process and formula design, the second to internal design and data issues more narrowly. In addition, the panel makes two specific programmatic recommendations.
In the first area, the panel emphasizes the importance of finding the proper balance between legislative control and program agency autonomy. At one extreme, the basic formula, the variables used to estimate its components, the data sources, and the special features would be fully specified in legislation. At the other extreme, the legislation would define the general objectives of the program, and the program agency would develop the specific formula and allocation procedures. The panel calls on formula allocation program designers in both the legislative and executive branches to be aware of and to evaluate the potential for behavioral responses by the funded jurisdictions aimed at influencing input data or other factors that affect calculated funding levels.
In addressing the design and data issues, the panel begins with guidance about how to evaluate trade-offs in timeliness, quality, costs, and other factors that are inherent in the selection of the variables used as formula components and in the data sources and methods used to estimate them. The panel strongly recommends that careful evaluation of the potential effects on allocations associated with special formula features—such as hold-harmless provisions, thresholds, and minimums—be part of any formula review protocol. Evaluations should focus on how use of these features