Key Issues > Federal Grants to State and Local Governments
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Federal Grants to State and Local Governments

Federal grants help state and local governments finance many public services. But agencies must ensure effective management and oversight of these grants.

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The federal government awards hundreds of billions of dollars in grants to state and local governments each year. These grants help finance a broad range of services, including health care, education, social services, infrastructure, and public safety.

Federal Grants to State and Local Governments and Medicaid, Fiscal Years 1980-2019

However, administering grants on this scale comes with a number of challenges, including:

  • Streamlining. Grants management requirements that are duplicative, burdensome, and conflicting require federal agencies to expend unnecessary resources and can burden grant recipients. Streamlining grant requirements could help.
  • Transparency. The Digital Accountability and Transparency Act of 2014 (DATA Act) required the Office of Management and Budget (OMB), the Department of the Treasury, and other federal agencies to increase the types of information available to the public on federal spending (including grants). Federal agencies have made progress in standardizing and expanding the data reported under this act, but there are still inconsistencies with the completeness and quality of the reported information.  Additionally, grantees are required to publicly disclose the amount of federal grant funds they receive, but some agencies have not enforced this requirement. OMB and Treasury should prioritize improving DATA Act reporting.
  • Duplication, overlap, and fragmentation. Assessing and avoiding duplication and overlap among grants before awarding them can help federal agencies save money and increase the efficiency of their grant programs.
  • Internal controls and oversight. Reducing improper payments and more consistently closing out grants (in order to redirect or return unused funds) can help agencies improve grants oversight and accountability. The increased federal funding available due to the COVID-19 pandemic has also amplified the need to effectively oversee federal grants. 

Fiscal conditions

Understanding current and future trends in the fiscal condition of the state and local government sector can help federal policymakers determine how to best allocate federal grants. GAO’s model provides a broader perspective on the nation's fiscal outlook by simulating fiscal outcomes for the state and local government sector. For instance, these governments face fiscal challenges due to the growth in healthcare costs. State and local Medicaid expenditures and the cost of health care compensation for state and local government employees and retirees are projected to grow at a rate that exceeds the country’s GDP.

Expenditures of State and Local Governments as a Percentage of GDP

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