How Fiscal Stability Impacts Grant Funding

New research suggests municipalities in fiscal crisis have more difficulty applying for and managing federal grants

What Happened?

New research suggests municipalities in fiscal crisis have more difficulty applying for and managing federal grants.

The Findings

The Government Accountability Office recently analyzed grant funding and management trends in financially-stressed cities across the country. Because these cities underwent significant cuts to personnel and department operations, the grant application process suffered. For the cities that did acquire funding, many found it difficult to oversee and report on how the funds were spent or measure the success of programs due to lack of staff and resources.

The research highlighted four concerns for municipalities in fiscal crisis seeking federal funds to jumpstart programs:

Reductions in human capital capacity challenged the ability to carry out grant compliance and oversight
Loss of human capital capacity created grant management skills gaps
Decreased financial capacity reduced the ability to obtain federal grants
Outdated IT systems inhibited the ability to oversee and report on federal grants

In response to these four major challenges, an interagency group was created to identify best practices for strengthening a municipality’s fiscal stability to ensure long-term securing and optimization of federal funds. Best practices derived from the pilot program included:

Collaboration between municipalities and federal agencies
Flexibilities to help grantees meet requirements
Direct technical assistance

The interagency group is studying these strategies in Detroit to determine their impact on the most severe cases of fiscal crisis at the local level.

Also A State Problem
Recent data from Pew Charitable Trusts revealed the majority of states have not completely rebounded financially from the 2008 recession despite national economic growth. The data revealed 30 states’ revenues are behind peak collections when adjusted for inflation and seasonal fluctuations, while nationally revenues have surpassed the 50-state peak reached in the third quarter of 2008. After removing California, Illinois and Texas from the mix, revenue fell short across the country.

Pew Charitable Trusts also analyzed the fiscal reserves of all 50 states to see how many could operate at least 24 days on emergency funds. The researchers – and most bond-rating agencies - make an association between a state’s reserve fund and its overall fiscal recovery from the 2008 recession. The data suggested half of the country has enough of a financial cushion to cover at least 24 days of operating expenses, while only five states could operate for more than 100 days.

So What Can We Do?
Michigan Governor Rick Snyder’s 2015 State of the State Address directly addressed the fiscal challenges seen at the state and local level. To help municipalities across Michigan avoid severe fiscal distress and even bankruptcy, Snyder proposed a fiscal scorecard protocol be implemented. The fiscal scorecard could be used at the state and local levels to keep track of financial and operational performance. The scorecard would not only keep all departments focused on key objectives, but also provide citizens with an easy-to-use rubric to monitor government activities, transparency and accountability.

Other states such as Arizona have adopted website databases that provide users with detailed information on government spending throughout the state. The reports outline checkbook-level payments by state agencies to ensure residents understand where money is allocated and the performance of these investments, AZ Central reported.