Economic conditions ; Terrorism ; War - Economic aspects

Christopher J. Martinek

Michael J. Dueker

English

Research Papers in Economics

December 2006 NationalEconomicTrends
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
O
n October 4, 2006, President Bush signed the
Department of Homeland Security (DHS) Appro  pri  -
ations Act for fiscal year 2007. The law provides
$525 million for state homeland security grants and, as in
previous years, allocates the funds according to a formula
written into law by the Patriot Act. This formula guarantees
each state 0.75 percent of the total funds appropriated in a
fiscal year for state and local terrorism preparedness grants.
In the initial years of the program, the allocation of remaining
funds was left to the discretion of the DHS, which distributed
the remaining funds according to each state’s share of the
national population.
In June 2004, the 9/11 Commission report recommended
against the population-based distribution of these grants. The
Commission favored instead an allocation based on risk and
vulnerability. Critics of the state grant formula pointed to
Wyoming’s total grant receipts per capita, which were the
largest among all states because Wyoming has the smallest
share of national population. In contrast, states such as
California and New York, with a presumably greater terrorist
threat, received much less per capita funding.
The U.S. House and Senate responded to the 9/11
Commission by seeking to base state grant levels more on
risk assessments and less on population, while still guaran-
teeing a minimum share to each state. The distinct House
and Senate proposals serve as a case study in political econ-
omy, in the way political bodies seek to allocate economic
resources. The House bill proposed a state minimum alloca-
tion of 0.25 percent; the Senate bill proposed 0.55 percent.
These numbers are interesting: In the House, each state has
a minimum voting share of 1/435 or 0.23 percent of the
representatives. In the Senate, the allocation of two senators
for each state, regardless of population, increases the relative
representation for small states in the full U.S. Congress to a
minimum of 3/535 or 0.56 percent. It is remarkable how close
these two percentages are to the minimum allocations that
the House and Senate proposed. Political economy considera-
tions would suggest that the median voter on this issue in
the Senate would be from a state with below-average popula-
tion—hence, the relatively generous 0.55 percent minimum
share.
In conference committee, however, the House and Senate
did not agree on whether or how to amend the Patriot Act,
so each state’s 0.75 percent minimum share has remained
intact. Instead, the House and Senate decided to cut the size
of the state grant program, both in its share of DHS spending
and in absolute terms. In addition, the state grant funds not
committed by the minimum guaranteed levels are to be dis-
tributed according to risk and not simply population.
Accordingly, the attached chart shows how per capita
grants to the states shifted between 2005 and 2006. The dis-
tribution of per capita grants across states became much more
concentrated in the range of $1 to $3 per capita in 2006 and
grants above $13 were eliminated by reducing the program’s
overall funding. Congress may have wanted to reduce the
per capita grants to the smallest states (seen as an excessive
amount by some) from about $18 to about $13 (about 30
percent). This reduction in funding to the state grant program
achieved roughly the same result for the smallest states that
the change from a 0.75 percent to a 0.55 percent minimum
share would have achieved. Total spending on homeland
security was not cut as drastically as the state grants; instead,
Congress chose to channel resources through alternative
programs not subject to the 0.75 percent minimum share
per state.
—Michael J. Dueker and Christopher Martinek
research.stlouisfed.org
Political Economy of State Homeland Security Grants
0
5
10
15
20
25
0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $12 $14 $16 $18
State Homeland Security Grants per Capita
Number of States 
Fiscal Year 2006
Fiscal Year 2005

Political economy of state homeland security grants

http://research.stlouisfed.org/publications/net/20061201/cover.pdf

Political economy of state homeland security grants

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