- The Washington Times - Thursday, March 17, 2005

On Wednesday, Secretary Michael Chertoff, the new boss of the Department of Homeland Security, delivered his vision for homeland security. The essence of his remarks was that from now on, a risk-based approach should drive the structure, operations, policies and mission of the department. Earlier, he told Congress that homeland-security money should be directed to cities most likely to be terrorist targets. This is a welcome development since lawmakers have been treating homeland security as a way of diverting more government spending to their states and districts.

Between fiscal 2001 and fiscal 2006, Congress increased by 2,200 percent the homeland-security budget for grants to state and local governments for “first responder” programs. However, rather than spend this money where terrorist threats are greatest, DHS follows a formula set by Congress that provides every state with a guaranteed minimum amount of state grants regardless of risk. Specifically, the formula guarantees each state 0.75 percent of the total amount appropriated to DHS for state terrorism preparedness grants. All told, 40 percent of the money is divided up equally among the states, regardless of size, risk or need.

This system does not make sense. States in rural, less populated areas, or populated areas — but less likely to be targeted by terrorist acts — often receive a disproportionate amount of grant money. For instance Wyoming and Alaska rank No.1 and 2 in per capita spending while New York and California finish near and at the bottom.

The lack of risk-based funding coupled with the lack of strategic spending has resulted in questionable uses of terrorism preparedness grants like $500,000 spent by Outagamie County, Wis. (pop. 165,000) to buy chemical suits, generators, rescue saws, disaster-response trailers, emergency lighting, escape hood and a bomb disposal vehicle, and $557,400 to North Pole, a town in Alaska (1,570 people) for homeland security rescue and communications equipment.

In an effort to address this problem, the president’s fiscal 2006 budget has proposed to distribute grants to state and local governments primarily based on the risk of terrorist attacks and the magnitude of potential damages — not population. Under the Bush proposal, each state would get 0.25 percent of the available first-responder dollars. The remaining dollars would be disbursed based on risk.

Senators from small states criticize the president’s proposal, arguing that dropping the all-state minimum formula would “shortchange rural states.” The idea behind this opposition is that terrorists could strike anywhere. Heads of homeland security agencies in rural and small states even argue that their turf is just as threatened as Washington or New York.

This theory, however, has not been supported by expert analysis. In 2003, the Insurance Services Office (ISO) completed a research project to set objective prices for terrorism insurance. They surveyed five former FBI, CIA and Pentagon intelligence experts and applied their opinions to a database of 300,000 potential targets. They used this information to set baseline rates for terrorism insurance. They concluded that the highest risk cities are New York, Washington, Chicago, San Francisco and those at high risk of attack are Los Angeles, Philadelphia, Houston, Seattle and Boston — not Colchester, Vt., or Fairbanks, Alaska.

Allocating funds based on risk has support from those whose lives are at stake. In a letter to Rep. Peter Hoekstra, Michigan Republican, chairman of the Congressional Conference Committee, 17 police and fire organizations wrote, “We believe that the funds should be distributed based on a risk or threat-based model.” They added, “To the extent that state minimums are included, we urge that the minimums be kept low, in order to provide maximum funding to areas of greatest need.” In other words, smaller states may face risks, but priorities must be set. Besides, shouldn’t states set some of their own money aside for homeland security purposes?

Ultimately, the problems with homeland-security grants are symptomatic of any federal grant program. Numerous reports have pointed at the complexity in the federal-grant industry as well as at the mismanagement and abuse of federal funds. Grant programs usually have a noble purpose — such as help for poorer regions or homeland security — yet they always turn out to be an extremely ineffective way to achieve a policy goal.

The evidence suggests that homeland security grants to state and local governments are often misallocated. Accordingly, reform of this system is a worthy priority. At the very least, lawmakers should make sure that existing grants are allocated in the way that will best protect America. This requires spending the money based on risk management rather than politics.

Veronique de Rugy is a research fellow at the American Enterprise Institute.

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