The federal aid highway program, which includes highway planning and construction and several other subprograms, has numerous penalty provisions. State allotments for various subprograms can be reduced by specified percentages for failure to enforce vehicle size and weight laws, to control outdoor advertising, to comply with the 1990 Clean Air Act Amendments, to have a law that prohibits purchase or public possession of any alcoholic beverage by a person under age 21, and to comply with other requirements.

The national school lunch program includes maintenance of effort requirements. States are required to appropriate or use for program purposes state funds amounting to up to 30 percent of the federal funds received. The 30 percent requirement is reduced for states whose per capita income is less than the national average. If a state fails to meet its requirement, certain federal funds are subject to recall by or repayment to the U.S. Food and Nutrition Service.

These examples illustrate the carrot and stick aspect of federal grant programs, whereby payments to states are made contingent on behavior considered by Congress and executive branch agencies to be in the national interest.4


Special features, such as thresholds, limits, hold-harmless provisions, and caps, are used in many formula allocation programs to serve various purposes. They can lead to allocations quite different from those that would result if only the basic formula is used. Any attempt to evaluate the performance of a formula allocation program must, of necessity, take account of the effects of these special features, both on initial allocations and on changes over time.

Generally, policy analysts and congressional staff simulate one year’s allocations under different formula provisions, and sometimes longitudinal assessments are conducted to explore how allocations vary over time under different hold-harmless levels (including no hold harmless) and other provisions. Similarly, longitudinal analyses are needed to assess how program operations in an area might be affected by, for example, a 10 percent reduction in funding, especially if need had really decreased by 10 percent.


For more on this topic, see the series of articles on welfare quality control programs (estimation of penalties), from the Journal of the American Statistical Association, vol. 85, no. 411 (1990): articles by Kramer (pages 850-855), Hansen and Tepping (856-863), Fairley et al. (874-890), Puma and Hoaglin (891-899).

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