The BIA and IHS demonstration experiences are used as a proxy to approximate what may happen to costs under a demonstration. Both demonstrations reasonably resemble the size and scope of the recommendations in this study and their use as a proxy is intended to illustrate a general range of what might happen. The actual scope of a demonstration that is authorized would determine costs more precisely. In this respect, both the BIA and IHS self-governance experiences indicate the likelihood that a self-governance demonstration project will require funding above current levels in several cost categories. It is also probable that the cost of a demonstration will exceed any realized savings from self-governance, at least in the short term (savings, if they occur, would more likely be long term). Since none of the targeted programs include direct Federal delivery of services, but rather are components of a Federal/State/Tribal partnership, there also will be no apparent immediate savings in Federal administrative costs (see pp. 13-14).
Possible costs of a demonstration project fall into five cost categories: startup, including tribal planning and negotiation costs; project management; direct; indirect; and matching costs.
Before entering a demonstration project, tribes will need to assess their capacity to enter into a self-governance agreement. This includes identifying tribal law or tribal organization changes that may be needed, management systems improvements that must be made, or other changes necessary prior to the assumption of program responsibility. Tribes also will need to prepare and submit self-governance proposals, negotiate self-governance agreements with HHS, and implement identified management changes and improvements after startup. All of this will require tribes to incur startup costs for which they are unlikely to have sufficient tribal resources.
Because of the limited resources of many tribes, both BIA and IHS have made small, one-time grants available to tribes to cover startup costs. In IHS, $50,000 planning grants were offered to tribes to defer the costs of assessing capacity, developing proposals and identifying and implementing management changes. An additional $20,000 grant is available for covering the cost of negotiating initial self-governance agreements with HHS. During consultations with the tribes on design issues, the availability of similar grants was identified as essential by the tribes for a demonstration project. If authorized, $3.5 million would be needed to provide a planning and negotiation grant to each of the 50 tribes or tribal consortia participating in a demonstration based on the IHS model. If a demonstration was later made permanent, a much larger number of tribes would probably choose to participate, increasing the cost proportionally.
- Project Management
Design recommendations for a demonstration (see the recommendations section of the study) include a single point of contact in HHS for project management. During stakeholder consultations, tribes were especially vocal about the need for this structure. Under this design, a single office in HHS would be assigned the responsibility for management of a demonstration project, including policy development, leading negotiations, technical assistance, financial management, and project oversight.
Currently, both BIA and IHS have offices dedicated to the management of their self-governance programs. Both offices have workloads similar to what might be anticipated under a demonstration and are almost identical in size. Therefore, the cost of these offices is assumed to be a good proxy for the cost of a project management office for a demonstration. Based on this assumption, the annual cost of supporting a project office would be about $1.2 million annually.
Not included in the office estimate are additional project costs for travel to sites for negotiation of initial and annual agreements. Assuming an average of 50 negotiations annually, teams of five federal negotiators (similar to the IHS experience), and an average per person cost of $1,500, annual travel costs to the project would average about $375,000. Also, not included in the office estimate are legal support costs. The cost of legal staff to review agreements and waiver requests, assist with negotiations, and address other legal issues that are likely to arise during the course of a demonstration is estimated at $1,000,000 annually (the equivalent of six full-time staff based on the IHS experience).
Finally, the cost of an evaluation of a demonstration project (see the recommendations section of the study) is likely to be about $1,000,000 annually, including costs to help tribes meet data collection requirements of the evaluation. All stakeholders agreed that a comprehensive evaluation is needed to assess the results of a demonstration. Tribes were especially concerned that additional resources be available if data collection requirements were significant.
The cost to tribes of data collection and reporting related to performance measurement requirements (see recommendations section) is not included as a cost, since existing program funds can be used for data collection and reporting related to program outcomes.
In total, annual project management costs are estimated to be about $3.575 million annually during the period of a demonstration. One time costs of up to $3.5 million would be needed for tribal planning grants.
- Direct Costs
Of the programs recommended for inclusion in a demonstration project (see recommendations section), tribes currently are eligible for and receive funding under all eleven of the programs. In all but one, funds are already set aside for tribal grantees.
- Indirect Costs
A number of recent studies have documented the problems tribes encountered during the BIA and IHS self-governance experience in receiving full reimbursement for indirect costs (see GAO/HEHS-98-134, GAO/RCED-99-150 and GAO-01-249). The studies also highlight the potential impact of shortfalls in indirect costs. Either program or tribal funds may be diverted to cover shortfalls, resulting in a diminution of services or other development opportunities for tribal members.
Full reimbursement of indirect costs is an issue for a tribal self-governance demonstration project. Eight of the programs identified as feasible to include in a demonstration currently have statutory or regulatory limits on administrative costs (see Appendix F) which may affect the ability of tribes to fully recover their indirect costs. Administrative costs can make up a substantial portion of a Tribe's total indirect costs. The magnitude of the potential problem caused by the limitation on administrative costs can be seen from a projection of the shortfall of indirect costs under tribal programs. Using an aggregate negotiated indirect cost rate of 25% for tribes by the DOI between 1989 and 1996 (the aggregate or average rate was cited by the GAO in a study of tribal indirect cost rates - GAO/RCED-99-150), and assuming that administrative costs sometimes comprise all of the indirect costs incurred by a tribal grantee, shortfalls in indirect costs could range from 0% to 20% for the eight programs that impose reimbursement limits. Tribes having indirect rates above the average rate of 25% would have significantly greater shortfalls.
Three options are available to Congress to address the indirect cost issue. First, caps on administrative costs can be maintained, although the impact of caps may discourage participation in a demonstration by tribes with insufficient resources to offset shortfalls or force tribes to use tribal resources that otherwise could be used for services or other development purposes. Second, caps can be waived. This has the potential for diverting funds from program services to cover administrative costs. Third, caps can be waived, but additional funds provided to offset a potential shift of funds from services to indirect cost categories.
If the last option is considered by Congress, the cost of a demonstration would be considerable. For example, administrative costs and development costs are limited to 15% of the Head Start program. Using the aggregate negotiated rate of 25%, an average shortfall in indirect costs for a grantee whose administrative and development costs comprise all of their indirect costs would be 10% of the grant award. For the Head Start program, 160 tribal grantees received a total of $171 million in FY 2001 grants, an average of a little more than $1.0 million per grantee. Applying the average indirect cost differential to the Head Start program and assuming 50 tribes or tribal consortia in a demonstration, the shortfall in indirect costs for one year would be about $5 million. While this is one example, there are seven other programs where similar costs would be incurred. If a demonstration were later made permanent, the cost of raising the allowable administrative and development cost rate from 15% to 25% for all 160 tribal Head Start Grantees could be as high as $16 million.
Of the three options, the Department's recommendation is to maintain the status quo; i.e, administrative cost caps should be maintained. As stated, the two other options would have considerable consequences. The cost of a demonstration would rise significantly; or funds would be directed away from program services. These options would also mean that participating tribes would be treated differently than other recipients under the programs, including those tribes not participating in a demonstration project. What is recommended, to help balance the potential tribal need for indirect costs, is to allow tribes to consolidate indirect costs funds up to the total allowable from all programs and use those funds to cover any allowable indirect costs.
Four of the programs determined feasible for inclusion in a self-governance demonstration require that grantee funds match federal funds. These requirements currently apply to tribal as well as State grantees. Matching requirements range from 0% to 25%. For tribes with limited resources, matching requirements make participation in a demonstration project problematic, although several programs permit and do waive all or part of the matching requirement. Congress may want to consider this impact if a demonstration is authorized. Appendix F outlines current matching requirements for targeted programs.
In trying to assess probable savings that might accrue under a tribal self-governance demonstration project, potential savings from the transfer of program management to the tribes and program consolidation were examined. In doing so, the development of numerical estimates of savings was found to be impractical due to a lack of quantitative data on which to base estimates. However, from an analytical viewpoint, it does not appear that any substantial amount of savings is likely to accrue to offset the projected costs of a demonstration. An analysis follows.
- Program Efficiencies
Much of the literature on self-government concludes that savings in management costs will accrue as tribes consolidate or simplify accounting, reporting, and other management structures under self-government agreements. For example, when tribes consolidated multiple contracts with IHS into single, self-governance compact agreements, savings in overhead expenses associated with the management of the separate contracts were believed to accrue. There is no clear evidence, however, to support that conclusion. While extant studies mention that possibility and some cite case examples, none provide quantitative evidence to that effect.
- Devolution of Federal Responsibility
It is generally assumed that the transfer of program responsibility to tribes under self-governance will reduce the need for federal staff and other expenses and that the attendant savings can be transferred to the tribes for program use. This was the case as tribes exercised self-governance options in IHS. Technically, no actual savings accrue in this situation, nor were savings intended to accrue. Federal funds simply move from one provider (the federal government or other non-tribal entity) to another (the tribe). The process involves an offset and transfer of funds. A further discussion of this process is warranted to explain what tribes may or may not expect in the way of funds available for transfer under a demonstration.
Fundamentally, there is a difference between the IHS experience and what can be expected under self-governance for non-IHS programs. The IHS is a direct service delivery program. IHS personnel directly provide health services to tribal members. As tribes take over service delivery from IHS, IHS personnel are no longer needed and attendant savings or personnel are transferred to the tribes.
However, for the HHS programs recommended for inclusion in a demonstration project, federal personnel do not deliver services directly. Rather, these programs are carried out as either financial assistance (grant) programs or through contracts. Under these instruments, grantee or contract personnel deliver services. Therefore, under a self-governance demonstration, there would not be a corresponding reduction in federal staff as tribes assume responsibility for programs under a demonstration.
On the other hand, it is probable that some grantees or contractors (State agencies for example) may experience savings if tribes begin to deliver services heretofore delivered by grantee or contract staff. However, it is not possible to provide an estimate of what savings might accrue for a particular program for a variety of reasons. Data to estimate the amount of funds currently spent by grantees or contractors serving tribal clients are not available. Also, most of the programs recommended for inclusion in a demonstration project already authorize tribes to receive grants or contracts to deliver services to tribal members and many tribes already are doing so. In these cases, no savings would accrue if the transfer of a program to tribal control takes place prior to the initiation of a demonstration project. Furthermore, it is not known which tribes would qualify under a demonstration and what programs they would want to include in a self-governance agreement. This uncertainty makes it impossible at this time to estimate the extent to which specific programs might devolve from existing grantees or contractors to a tribe and what attendant savings might be available for transfer to the tribe.
With respect to the transfer of program responsibility and funds from existing grantees to tribes, it also should be noted that tribes may actually receive less funding in some cases. Specifically, in programs such as the Low Income Home Energy Assistance Program (LIHEAP) and Temporary Assistance to Needy Families (TANF), some States regularly supplement the statutory minimum that tribes are due under statutory formulas or provide additional funds if tribes run out of funds. States could withdraw these supplements if tribes elect to participate in a demonstration and receive funding directly, rather than receiving funding through the State. Continuation of supplemental agreements between tribes and States would not, however, be precluded because of a demonstration. Inclusion of LIHEAP and TANF by a tribe in a demonstration project, would be a tribal choice and based on what the tribe determines is in its best interest and negotiations between the tribe and State.
While federal funds are largely transferred to grantees or contractors, federal personnel will be involved in project management activities related to the grants or contracts. These activities include policy development, award and oversight, financial management, and legal duties. There is no likelihood, however, that a self-governance demonstration will lead to savings related to these federal functions since most staff performing these functions are not solely, or even significantly, dedicated to tribal work. Most have broad portfolios that encompass all types of grantees or contractors and tribal work will be a very small percentage of the total time and effort. In those few cases where federal staff may be working exclusively on tribal programs, the functions are those typically needed for award, audit, and other federal responsibilities, not direct program administration or service delivery.