funding, agencies must trade off the timeliness of 1-year period estimates and the greater precision of 3-year period estimates.

When agencies decide that there is no choice but to use 5-year period estimates from the ACS in a funding formula in order to gain sufficient precision, they should be aware that inequities may result. For example, two areas may have the same 5-year period poverty rate and therefore receive the same allocation, even though one area may have a sharply increasing poverty rate and the other area a sharply decreasing poverty rate over the period. Even in this case, however, the use of ACS 5-year period estimates would represent an improvement over the continued use of the increasingly out-of-date 2000 long-form-sample estimates.

At present, the only federal funding program that makes allocations to areas with fewer than 50,000 people is the No Child Left Behind Act, which allocates funds to school districts, varying in size from a few hundred to several million people (see Table 2-4). The SAIPE estimates that are used for the allocations are more up to date than the direct long-form-sample estimates later in the decade, but they rely on statistical models. The incorporation of ACS data into the SAIPE county and school district models should make it possible to improve their timeliness and precision.


Consistency of Period Estimates In trading off such considerations as currency and precision, in no instance should agencies use in their allocation formulas a mix of different periods of ACS estimates—for example, 1-year (or 2-year) period estimates for larger areas and 3-year or 5-year period estimates for smaller areas—in an attempt to equalize the sampling error across areas. The reason has to do with equity: formulas generally allocate shares of a fixed pie, so that the data used in the allocation should reference the same time period. Otherwise, inequitable outcomes may occur. For example, consider a large county and a medium-sized city, both of which experience rapidly increasing poverty over 5 years. If in a poverty-based formula, 1-year period estimates are used for the large county and 3-year period estimates are used for the medium-sized city, then the county will likely receive more than its fair share of funds over the 5 years compared with the city because the 1-year period estimates will likely exhibit more growth in poverty than the 3-year period estimates.

3-A.2
Determination of Median Incomes for Counties

The U.S. Department of Housing and Urban Development (HUD) obligates $27 billion annually for assisted housing programs in which families that have incomes below specified limits are eligible to live in public housing or receive rent subsidies. The income limits are determined separately for every metropolitan area and nonmetropolitan county as a function of



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