Statement of Principles

Grants can be a very attractive source of funding for local governments, as they can help pay for services, programs and amenities without going to tax- and fee payers for additional funds. Grants are offered by governmental entities or private providers, such as corporations, foundations and philanthropic organizations. Grants are not required to be paid back and typically involve an application process which may be competitive or automatic based on eligibility criteria.

But some grants may impose obligations or create consequences that are contrary to the principles of limited government, free markets and federalism. ALEC/ACCE has identified a set of 10 guiding questions for policymakers to ask themselves when considering applying for or accepting grant funding.

(1) Does the grant contribute to growing city or county government?

Some grants may simply supplement existing activities and priorities of the local government, while others expand the scope, function, budget, workforce, reach, or power of the city or county government that it might not otherwise elect to do. Just because a grant may allow a local government to provide additional programs or services, does not mean it should. The first guiding question when considering seeking or accepting a grant is whether it grows government.

(2) Does acceptance of this grant require the city or county to create new programs or services that do not currently exist?

If a service or program the grant seeks to establish does not currently exist, creating a new activity will have the effect of growing the government, rather than limiting it.

(3) Does acceptance of this grant require the city or county to hire additional personnel or engage additional contractors?

A grant program may have a reduced financial benefit if the city or county must pay for staff to manage it. Grants often allow a portion of the funds to be used to administer the program. However, this results in growing the city or county workforce, with added indirect costs and inherent responsibilities for employees. When grant programs terminate, local governments feel responsible to find or create new positions for grant employees, which may not be a priority. As a government’s employee base grows, it can influence public policies in its own interest disproportionate to other constituencies.

(4) Does acceptance of this grant require maintenance of effort?

Grants frequently require the recipient to maintain a level of service or funding for the duration of the grant program and sometimes after the grant expires. Maintenance of effort usually requires grant funds be used to supplement and not replace existing funding or resources dedicated to an activity. Some granting entities have the ability to seek repayment of funds if the recipient does not meet the maintenance of effort requirements. A grant’s activities can become a Hotel California obligation.

(5) Does acceptance of this grant require additional city or county appropriations or incur indirect costs?

Some grants require matching or proportional funding or resources from the city or county. They may also impose direct or indirect costs related to human resources, IT, facilities, travel, legal, or communications, with the effect of growing the city or county government and their budgets. Policy makers should inquire whether these conditions exist and consider how they may decrease the value of the grant.

(6) Will the city or county compete with the private sector for this grant award or subsequent market share?

When governments compete with the private sector, it is rarely on an even playing field and can have the effect of skewing the marketplace and the elements of competition. It weakens the ability of private entities to seek needed funding. It can harm a private market sector and shift private activities to the government, where they are not subject to competitive forces that drive innovation and keep costs down. The result is a lower level of quality and efficiency, while increasing public dependency on the government. Longitudinally and at scale, it can eliminate private providers, leaving governments as the sole providers of a good or service.

(7) Does acceptance of this grant anticipate sub-granting or donating any portion to other entities? If so, which?

Some grants allow for all or part of its activities and funds to be sub granted to other public or private entities. This is often less transparent and accountable to the city or county government and the public and may ultimately support activities that are not aligned with or are in conflict with the goals of the city or county government or its individual elected representatives.

(8) Does the grant establish a program or service that is likely to become a long-term commitment?

Many grants serve to seed-fund or pilot a program or service and are usually of limited duration. Once established and offered to the public, it may be difficult to discontinue the program when the grant funds are no longer available. Policymakers should evaluate the long-term intentions of the grant program and of those proposing that the city or county accept it. They should also understand the inherent risk of creating public expectations and demands to continue the program, even when the funding ceases..

(9) Does the grant bypass the state government in a manner that shifts power to the federal government or otherwise weakens the state’s position in a federalist system?

Grants to local governments may be used to bypass state legislatures that may not desire to implement the programs or services the grant supports. Such a scheme prevents the state from exercising proper oversight of its political subdivisions and hinders a vital check on overreach of the federal government, which weakens the state and empowers the federal government.

(10) Has the grantor been evaluated?

Policymakers should evaluate a grantor’s organization, mission, principals, partners, budget, other grant recipients, reputation, and policy agenda.

In larger city and county governments, individual departments and agencies may seek grant funding autonomously and without the awareness of elected policymakers. The financial transactions may be hidden in an aggregate budget figure. In addition to asking the Ten Guiding Questions, city and county officials may consider policies to increase transparency and oversight of grant activity, such as establishing review or pre-approval processes and standards when seeking and accepting certain types of grants.