USDA Allocates Loan and Grant Funds to State Offices Through a Formula

USDA administers the Water and Waste Disposal Program—referred to in this report as the water and sewer program—through its Rural Utilities Service. No state may receive more than 5 percent of the total loan and grant funds initially allocated. This report provides information on (1) funding levels for the program and the projects supported, (2) the formula that USDA uses to allocate loan and grant funds among its state offices, and (3) the approach that USDA state and district offices use to distribute funds within states. It consists of three weighted factors for each state: rural population (50 percent), rural poverty (25 percent), and rural unemployment (25 percent). USDA’s Water and Sewer Formula May Partially Satisfy Allocation Criteria

The current formula may partially reflect the need for services and the ability to pay for such services, but it does not reflect cost differences between the states. Award Determination Approach Provides Flexibility While Resulting in Differing Funding Decisions for Similar Communities

USDA state and district officials have the authority to vary the amount of grant and loan funds that they award to communities eligible to receive funding for water and sewer projects.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) process for allocating and distributing loan and grant funds for water and sewer projects, focusing on: (1) funding levels for the Water and Waste Disposal Program; (2) the formula used to allocate funds among USDA state offices; and (3) the approach that USDA state offices use to distribute funds within states.

What GAO Found

GAO held that: (1) the USDA water and sewer program has provided loan and grant support totalling about $28 billion, supporting almost 17,000 projects, and assisting over 12,500 communities throughout the United States; (2) the three factors that USDA considers in its allocation formula for water and sewer funds are rural population, rural poverty, and rural unemployment; (3) no state may receive more than 5 percent of the total available funds in the initial allocation; (4) the allocation formula may partially reflect states' needs and ability to pay, but it does not reflect cost differences between states; and (5) although USDA state and district offices have considerable flexibility in determining the amount of grant assistance for individual projects under the current approach, this flexibility can result in differing funding decisions for similar communities.