Report 2002-123.2 Summary - August 2003

Federal Funds


The State of California Takes Advantage of Available Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource


Our review of federal grant funding received by California found that:


Overall, California's share of total federal grant awards is slightly less than its 12 percent share of the nation's population (population share). During fiscal year 2001-02, California received $42.7 billion, or 11.8 percent of the total amount of federal grants awarded. We reviewed the 86 grants accounting for 90 percent of total nationwide federal grant awards in fiscal year 2001-02. California's share of 50 of these grants exceeded 12 percent, providing $4.9 billion more than an allocation based on population share alone. California's share of the remaining 36 grants was $5.3 billion less than an allocation based on population share alone. Several factors come into play when the federal government awards federal grants. Some are under the State's control and some are not. Grants where California's share falls below its population percentage include the following:

Federal funds also are limited by state and local policies for which benefits may outweigh the loss of funding. California's share of the Special Education-Grants to States (Special Education) grant, for example, is less than would be expected given its number of children because of assessment practices and rigorous screening of children being considered for special education services. Also, California's federal funding for the In-Home Supportive Services program is less than it could be because the State of California (State) pays legally responsible relatives to be caregivers, a type of activity that is ineligible for federal reimbursement.

In other cases, the State could increase its federal funding, but would have to spend more state dollars to do so. Some federal dollars have been lost because departments could not obtain the required state matching funds. For example, the Department of Health Services (Health Services) lost federal funds for a component of the Medical Assistance program due to the lack of matching funds. Other federal money has been lost because according to some state agencies they have lacked the staff to apply for or administer the federal programs. In addition, local agencies could risk losing federal funds because of a drop in state funding for transportation projects.

The State has not complied with some program guidelines, resulting in other losses of federal funds over the last three years. In addition, departments sometimes lose federal funds by failing to obligate the funds within a grant's period of availability. The largest such loss was about $1.45 billion lost to California's State Children's Health Insurance Program because of a slow start-up of the program. Since 1998, California also has paid penalties to the federal government for failing to implement a statewide child support automation system. Finally, the statewide hiring freeze has limited agencies from spending available federal funds on grants staff, and a pending budget cut of 10 percent in personnel costs may further limit federal funds for staff.


As federal grants are brought up for reauthorization, the Legislature, in conjunction with the California congressional delegation, may wish to petition Congress to revise grant formulas that use out-of-date statistics to determine the share of grants awarded to the states.

The Legislature may wish to ask departments to provide information related to the impact on federal program funding when it considers cuts in General Fund appropriations.

Health Services should continue to work with the Department of Social Services to determine the feasibility of pursuing an Independence Plus waiver that may allow the State to claim federal reimbursement for a portion of the expenditures for caregiver services provided by family members to participants in the In-Home Supportive Services program.

The Department of Finance should ensure that it considers the loss of federal funding before implementing personnel reductions related to departments' 10 percent reduction plans.


The agencies we reviewed generally agreed with the report's findings and recommendations. The California Department of Education chose not to formally respond to the report.