City and county budgets now consist largely of federal and local grants. Indirect costs can support grant programs and minimize reliance on taxpayer dollars as a subsidy.

 

The Evolving Landscape of Grant Funding and Local Government Budgeting

Old man watching televisionGrowing up in rural South Georgia, I often heard the phrase "Not with MY tax dollars!" My grandfather grumbled this as he watched the nightly news on our rabbit-eared, tube television. It was during the late President Jimmy Carter's tenure, and the impact of "The Great Inflation" of the 1970s had many people frustrated and worried. For almost a decade, average Americans struggled with rising prices that strained household budgets and eroded savings. High inflation, coupled with uncertainty and volatility, made it challenging for businesses and local governments to plan and invest effectively.

Fast forward 50 years, and here we are again – facing inflation and rising property taxes. When I received my county's recent tax assessment, I couldn't help but wonder how the additional revenue was utilized and how my tax dollars were allocated in the past. Initial research showed that much of the money went towards education, public parks, and transportation initiatives meant to ease rising congestion in the community.

Local government budget

Services like these benefit my family directly, and I'm happy to pay my fair share to ensure they continue. Still, I couldn't help but question the allocation of funds for services that didn't directly benefit my family, just as my grandfather did all those years ago. And so, I dug a little deeper.

As it turns out, tax revenue is only a piece of the budgetary pie. Though it used to be the largest piece, pandemic funding has shifted the chart significantly, with many local governments seeing the lion’s share of their funding now coming from federal and local grants. I can almost hear you ask, “Ok, is that really a problem?” Perhaps. Let’s investigate further... 

The Division of Grant Funds and Taxpayer Dollars

Local governments and non-profit organizations across the country rely on grant funding to provide critical services to their communities, but subsidizing these grant programs with taxpayer dollars can lead to opportunity cost, equity issues, and lack of public support. To address these challenges, many organizations are turning to indirect costs to support their grant programs and minimize their reliance on taxpayer dollars as a subsidy.

What Are Indirect Costs?

budget puzzleIndirect costs are expenses that cannot be directly tied to a specific project or program, such as rent, utilities, and office supplies. Instead of allocating these costs to a particular program, organizations can pool them together and use them to support their grant programs. By doing so, organizations can ensure that their grant programs are fully funded without relying solely on taxpayer dollars.

Benefits of Utilizing Indirect Costs:

  • Preserving taxpayer dollars: Utilizing indirect costs in grant programs helps to conserve taxpayer dollars for other important priorities such as infrastructure, education, or public safety.
  • Financial responsibility: Taxpayers expect their dollars to be used effectively and efficiently. Using indirect costs can ensure that funding is allocated more efficiently.
  • Promoting equity: Subsidizing grant programs with taxpayer dollars may not be equitable, as the benefits of the grants might not reach all community members equally. Local government administrators should consider alternative funding sources, such as indirect costs, that are more equitable and better targeted to meet community needs.
  • Building and maintaining public support: Utilizing indirect costs can help organizations build and maintain public support for grants and other initiatives by reducing or eliminating the use of taxpayer dollars.

Key Takeaways

Utilizing indirect costs in grant programs can provide numerous additional benefits and deter an angry mob at the next public hearing or council meeting. Demonstrating that a public program can support itself also removes politics from the discussion and frees administrators to focus on financial and programmatic outcomes instead. This, in turn, frees up taxpayer dollars for other important priorities and promotes a more efficient and equitable use of public resources. Now that sounds like something even my grandfather could agree with. 

Written by: Jason Portt, Indirect Cost Recovery Manager

 

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