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CHAPTER 1

Introduction

In the hearings preceding enactment of the law that established this Commission, it was recommended that grants be studied by the Commission.1 Because of the importance of Federal grant activities and the uncertainty of their relationships to procurement, a limited review 2 of Federal grant-type assistance was conducted. The purpose of this review was to gain an understanding of the significance, if any, of the interchangeable use of grants and contracts and of the extent to which procurement rules and regulations are or should be applied to grant-type assistance.

As data on Federal grant-type programs were examined, the focus was enlarged to include questions such as:

• What is the nature of the grant-type assistance relationships that exist between the Government and the recipient?

• Can and should grant-type assistance be distinguished from procurement?

• Can the confusion which seems to beset grant-type programs be reduced by giving relationship-based definitions for Governmentwide use to terms such as contract, grant, and grant-in-aid?

These efforts led to the recognition of certain

1U.S. Congress, House, Committee on Government Operations, Government Procurement and Contracting (Part 6), Hearings on H.R. 474 before a Subcommittee of the Committee on Government Operations, 91st Cong., 1st sess., May 15-21, 1969, pp. 1636-1637. 'See Appendix A for a description of the methodology followed. The term "Federal assistance" means the provision of money, services, or real or personal property for the purpose of supporting, stimulating, strengthening, subsidizing, or otherwise aiding or assisting non-Federal activities. We have examined grant-type assistance programs, transactions, and relationships and not other types of assistance such as loans, subsidies, insurance, and the various forms of nonfinancial assistance. The best composite data Federal assistance activities is in the Catalog of Federal Domestic Assistance prepared by the Office of Management and Budget.

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needs and the development of proposals to deal with them.

Federal grant-type activities are a vast and complex collection of assistance programs, functioning with little central guidance in a variety of ways that are often inconsistent even for similar programs or projects. This situation generates confusion, frustration, uncertainty, ineffectiveness, and waste. This disarray can be traced to three basic causes:

• Confusion of grant-type assistance relationships and transactions with procurement relationships and transactions

• Failure to recognize that there is more than one kind of grant-type relationship or transaction

• Lack of Government-wide guidance for Federal grant-type relationships and transactions.

To deal with these problems and confusions we have concluded that legislation is required to: (1) distinguish assistance from procurement by restricting the term "contract" to procurement relationships and by requiring the use of other instruments to implement assistance relationships; (2) distinguish among grant-type relationships by introducing a "new" instrument (cooperative agreement) to accommodate the assistance relationships requiring substantial Federal/non-Federal interaction during performance; (3) override statutes which prevent the agencies from using the most appropriate instrument in each grant-type and procurement situation; and (4) give the agencies new authority to use grant-type instruments in situations which call for them.

We have concluded also that Federal assist

ance programs require guidance on program implementation and a greater degree of standardization and consistency than now exists. There is a need to spell out basic assistance policies and procedures in the way that procurement regulations spell out basic procurement policies and procedures. Pending legisla

tion that will reduce the present statutory barriers to consistency and that will give the agencies new authority for grant-type relationships, a study should be made of the feasibility of developing a Government-wide system of guidance for all Federal assistance programs.

CHAPTER 2

The Present Situation

The Federal Grant Program

During the 1950's and 1960's Federal grants to State and local governments and to nongovernmental recipients grew significantly in relative and absolute terms. Measured by the National Income Accounts, Federal grants to State and local governments increased from $2.2 billion in 1950 to $21.7 billion in 1970. This growth resulted largely from the highway program (initiated in 1957) and the expansion of socially oriented programs administered by the Departments of Health, Education and Welfare (HEW), Labor, and Housing and Urban Development (HUD).

The number of grant programs also rose sharply in the 1960's. In 1964, the Library of Congress identified 216 authorizations for Federal grant programs for assistance to State and local governments. In 1966, the Library identified 399 authorizations; most of the new programs were in the fields of education, urban development, health, welfare,

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11971 Statistical Abstract of the United States. Table No. 433, Federal Grants to State and Local Governments by Purpose: 1950 to 1970, p. 273.

Table 1, infra. The Commission estimated that an additional $6.4 billion consisted of awards to nongovernmental recipients. Statistics on these types of awards are not readily available or easily compiled as they are not reported in the Statistical Abstract of the United States, the National Income Accounts, or the Special Analyses of the U.S. Budget. The OMB catalog was the primary source for these data. Although the National Income Accounts do not separately identify Federal grants awarded to nongovernmental organizations and individuals, budgetary and other sources indicate substantial growth of Federal grants awarded to these recipients.

'U.S. Congress, Senate, Committee on Government Operations, Catalog of Federal Aid to State and Local Governments, hearings before the Subcommittee on Intergovernmental Relations of the Committee on Government Operations, 88th Cong., 2d sess., Apr. 15,

1964.

*Labovitz, Number of Authorizations for Federal Assistance to State and Local Governments, Legislative Reference Service, Library of Congress, July 5, 1966.

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In fiscal 1970, the value of Federal grants awarded to State and local governments (about $21.7 billion) was more than three times greater than that of awards to nongovernmental recipients (about $6.4 billion). HEW dominates Federal grant programs since it funded more than half the totals to both governmental and nongovernmental grantees. The largest HEW grant programs are those of the Social and Rehabilitation Service, with its $8.5 billion for programs assisting the welfare of individuals, and the Office of Education (OE), with its $3 billion in grants benefiting largely the educational systems of the country. HEW grants to State and local governments were almost three times those awarded to other HEW grantees.8

The next largest program is in the Department of Transportation (DOT), with its $4.5 billion in grants largely for the construction programs of the Federal Highway Administration. Other large grant programs are administered by the Departments of Labor, Agriculture, and HUD. Grants to States and local units dominate in all of these programs." Federal grant programs also grew significantly during fiscal years 1971-1973. Federal aid to State and local governments increased

Catalog of Federal Domestic Assistance, OMB, 1971 edition.
Fig. 1.
Table 1.

8 Ibid. • Ibid.

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[graphic]

$39.1 BILLION (EST.)

Source: Special Analyses Budget of the United States Government, Fiscal Year 1973, Table P-9, Federal Aid to State and Local Governments, pp. 251-254. Percentages calculated by Commission.

Figure 2. Federal Aid to State and Local Governments by Function, Fiscal 1972.

TOTAL $28.1 BILLION

Source: Commission Studies Program.

Figure 1. Distribution of grant funds, by type of recipient, fiscal 1970.

10 Special Analyses, Budget of United States Government, Fiscal Year 1973, table P-4, Federal-Aid Expenditures by Agency, p. 245. Figures rounded by the Commission.

grants, which it calls "grant-contracts," than is customary in many procurements. The Office of Saline Water of the Department of the Interior issues both grants and contracts for research but treats them in a fashion that makes them relatively indistinguishable; its decision to use a grant or a contract is based on the type of recipient rather than on the nature of the research or the agency's purpose in funding it.

The term "grant-in-aid" was originally used to describe grants to State and local governments but now it also is used to describe grants to other types of recipients. It is usually associated with the large formula-type assistance programs of HEW and DOT. The De

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