1-year period ACS estimates will be preferable to 3-year or 5-year period estimates, and 3-year period estimates will be preferable to 5-year period estimates. However, 1-year (or 3-year) period estimates may not be sufficiently precise—that is, may not have low enough sampling error—for fund allocation purposes. If estimates are not precise, then nontrivial changes in funding allocations from year to year may be an artifact of sampling error.6

A related consideration is the weight to give to currency for the most equitable allocations versus the practical arguments for moderating the magnitude of year-to-year changes to facilitate program planning and implementation. Many programs moderate fluctuations in program allocations through features of the formula. For example, under a hold-harmless provision, every locality is entitled to receive at least as many dollars as a specified percentage—which could be 100 percent—of its prior-year dollars.

Such legislative provisions have drawbacks, in that their use can delay the responsiveness of the funding formula to changes in need and also create inequitable allocations that are an artifact of sampling error in the estimates. For example, if legislation sets a threshold for eligibility, such as a minimum number of poor school-age children, and an area exceeds that threshold in a particular year because the estimate is greater than the threshold level due to sampling error, it will erroneously receive funding at that time. Moreover, the application of a hold-harmless provision will enable the area to retain funding in subsequent years, even though it was not eligible in the first place. An alternative approach to achieve more stable funding streams, while still responding to changes in need, is to eliminate thresholds and hold-harmless provisions and instead smooth the estimates themselves—for example, by using 3-year period estimates rather than 1-year period estimates for allocations to states (see Zaslavsky and Schirm, 2002). Implementation of this approach could require changes in legislation.


Geographic Area Considerations Yet another consideration in the selection of ACS estimates for fund allocation is the types and population sizes of geographic areas that are eligible for funding. Some formulas apply to a single type of geographic area, such as states, while others include several types of areas, such as states, cities, and counties, and still others have population size thresholds that may vary by type of area.

Consider first a formula allocation program, such as Special Education Grants to States, which uses state-level estimates of all children and poor

6

See Box 2-5 for definitions of sampling error and related terms, such as coefficient of variation and margin of error.



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