Statistical Issues in Allocating Funds by Formula (2003) / Chapter Skim
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5. Special Features of Formula Allocations
5. Special Features of Formula Allocations
Pages 40-49
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From page 40... ...
THRESHOLDS Thresholds on eligibility to receive funds produce discontinuities. The Title I education program, the community development block grant program, and the HIV Emergency Relief Project Grants under Title I of the 40
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From page 41... ...
These false negatives can have a large impact on both large and small school districts. A small school district with 10 truly eligible children that failed to receive a basic grant because the estimate was 9 or fewer might be unable to serve these children, and the amount lost could be substantial for a large school district with a true poverty rate at or slightly above the 2 percent level or one whose number of eligible children was close to the 6,500 threshold for concentration grants.
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From page 42... ...
Importantly, allocations depend both on formula features and on the statistical properties of estimated formula inputs, which in turn depend on the design and analysis of sample surveys and other inputs. This interaction between formula features and statistical properties of inputs has high leverage and apparently has seldom been taken into consideration by those who design formulas and surveys.
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From page 43... ...
In financial terms, the most significant limits are those placed on the federal medical assistance percentage (FMAP) , which is used in Medicaid and several other formula allocation programs to determine what proportion of state program expenditures will be reimbursed by the federal government.
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From page 44... ...
The federal aid highway and EPA state capitalization grants programs each guarantee a minimum share of 0.5 percent to every state, and the substance abuse block grants program guarantees a minimum of 0.375 percent. We have identified two possible justifications for such small-state minimums, one practical and one political.
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From page 45... ...
In the Title I education program, a model-based estimation procedure, with estimates updated biennially, has replaced the earlier use of estimates based on the decennial census, which were updated only every 10 years. However, for FY 1998-2001 Congress enacted a 100 percent hold-harmless provision and provided only a modest increase in the annual appropriation.
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From page 46... ...
Of the funds available for food grants after allowing for stability grants, 80 percent is used to cover increases in food costs due to inflation, and only the remaining 20 percent is allocated to states that are not receiving their fair shares as determined from current estimates of need. The special education program allocation rules ensure that as long as there is an increase in funds compared with the preceding fiscal year, no state can receive less than its allocation for that year (a conditional 100 percent hold harmless)
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From page 47... ...
Although moving average estimates will tend to be too high if there is a downward trend in need for an area and too low if there is an upward trend in need, Zaslavsky and Schirm show that using an exponentially weighted moving average that gives more weight to more current data reduces this tendency for a moving average to lag behind a trend. Although the use of moving averages in allocation formulas can eliminate or sufficiently reduce ratcheting, it may not in itself be sufficient to achieve the desired level of stability, and hold harmless may still be needed.
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From page 48... ...
Thus, a difference of one person in the numerator or denominator of the estimated poverty rate could make a substantial difference in the amount received by a school district. Such discontinuities can be avoided by making the hold-harmless proportion a smooth and slowly changing function of the poverty rate.3 BONUSES AND PENALTIES Several formula allocation programs have provisions for bonuses and penalties.
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From page 49... ...
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 SUMMARY Special features, such as thresholds, limits, hold-harmless provisions, and caps, are used in many formula allocation programs to serve various purposes.
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