How Your Tax Dollars are Spent

Having worked in the grant world and navigated the politics of public agencies for a number of years now, it never ceases to amaze me how little most people actually know about how their tax dollars are spent. I feel obliged to offer a little primer - How Your Tax Dollars are Spent 101, subtitled, "Where Grants Come From."

Grants are one of three main types of tax-dollar spending:

• Direct Services Spending - At the federal level, direct services spending is fairly limited. Direct services include things like the military, NASA and the parks service. At the state level, direct services increase as a proportion of the budget and include the state highway patrol and social services agencies. Local government budgets are spent almost entirely on direct services and include local police and fire departments, schools and teachers, and water and sewer services.

• Formula or Entitlement Funding - Formula funding, simply stated, is based on a formula; if you have X number of something, you get Y number of dollars. Entitlement funding is similar; if you meet A, B, and C criteria, you are entitled to benefits. Most federal spending falls into this category. Federal formula funding is passed on to the states to administer services like education and transportation, either directly or through formula distribution to local governments. Federal entitlements include major funding programs like Social Security, Medicare, and Food Stamps. A large proportion of state budgets consist of formula funds passed on to local governments and, to a lesser extent, entitlements like Medicaid, that directly benefit state residents. Local government budgets rarely include formula or entitlement funds that are passed on to other agencies; most local spending is for direct services.

• Competitive, Discretionary Grants - Grants are almost always competitive and are referred to as "discretionary spending" because they fall outside the realm of formula or entitlement funds. In essence, grants are for services delivered directly to the beneficiary, but they are not direct services because they are not provided directly by the funding agency. Rather services are provided by the grantee agency that has successfully competed and been selected to receive the funds.

The term discretionary grant is somewhat misleading and tends to be mistaken for earmark. For the most part, discretionary grants are not earmarks and they really aren't all that discretionary either - they are awarded competitively according to a rigid set of rules described in the funding program's RFP (request for proposals). There is a common misconception that competitive grants are more political than they actually are; generally, grants are awarded based on their technical merit, not political influence. Earmarks, on the other hand, are highly political and are the fourth category of government spending - one I decline to address except to say this: if you have a solution to a problem for which funding is available and your proposed solution has technical merit, hire a grant writer and get a grant; if you want an earmark, hire a lobbyist and cozy up to your elected official.