Prepared by Canadian Manufacturers & Exporters (CME)
For discussion in context of
Trans-Pacific Partnership (TPP) Negotiations
U.S. Federal Grants for Procurement Purposes
A.
Introduction
This paper examines the U.S. federal government transfers to other levels of government intended
for procurement of public infrastructure. It also examines the extent to which these transfers are
subject to Buy America domestic preferences and whether U.S. international obligations apply to
protect foreign suppliers from the effect of these preferences.
The United States has international obligations in relation to government procurement under the
WTO Agreement on Government Procurement (GPA) and other international trade agreements.
These obligations apply to identified procurement activities which are defined in schedules to the
agreement. However, these obligations do not apply to “non-contractual agreements or any form of
government assistance”1, such as grants and cooperative agreements. Government departments
are free to impose domestic preferences on transfers to other levels of governments for
procurement purposes, even if the granting department has obligations in relation to its own
procurement. Whether the procurement activities that is being funded, in whole or in part, by the
transfer is subject to international obligations depends on whether the recipient’s procurement
activities are covered.
The United States only covers 37 of its 50 states and it does not cover, for practical purposes, local
governments. Thus, many of the recipients of these grants are not subject to international
obligations.
At present, the United States federal government only imposes Buy America restrictions on
transfers associated with Department of Transportation programs. However, under the American
Recovery and Reinvestment Act of 2009, Buy American domestic preferences were applied to all
transfers to public works projects. Most of this funding was spent at the local level of government.
Similarly, under the American Jobs Act of 2011 (which did not pass Congress), the provision was
applied across the board. There have been several examples of bills introduced in Congress that
seek to extend the Buy America restrictions permanently to other federal transfer programs.
Buy America restrictions have an impact beyond simply the value of the federal grant. Where Buy
America restrictions apply, the entire project must comply with Buy America requirements for an
project to receive a federal contribution. In other words, the Buy America restriction requires that all
funds, including state and local contributions, spent on the project must comply with the Buy
America requirement. Moreover, in some sectors, it is too costly for distributors to carry double
inventory – one that is Buy America compliant and one that is not – meaning that suppliers of goods
that are not Buy America compliant can lose access to private markets supplied by these
distributors. Lastly, Buy America restrictions can be complicated to apply, driving up compliance
costs and creating potential liability in the event of their misapplication. This can discourage
suppliers from buying foreign goods even if can be would be permitted.
1
WTO Agreement on Government Procurement, Appendix 1, United States: General Notes, 19 March 2010 (WT/Let/672).
U.S. Federal Grants for Procurement Purposes
B.
Government Expenditures by the United States Federal Government
In the United States, federal government expenditures are broken down into six categories:
1. Contracts (direct procurement of goods and services);
2. Grants (federal funds awarded to a non-federal entity for a defined public or private purpose in
which services are not rendered to the federal government);
3. Direct Payments (funds paid to individuals under large entitlement programs, e.g., Social
Security);
4. Insurance (federally funded insurance programs);
5. Loans/Guarantees (where a federal agency provides funds to an non-federal recipient that
requires repayment and where a federal agency guarantees payment on a debt of obligation of
a non-federal borrower to a non-federal lender); and
6. Other (all other reimbursable, contingent, intangible, indirect financial assistance).2
U.S. Federal Government Spending (FY2010, billions)
$236.90
$0.45
$3.50
Contracts
$538.60
Grants
Direct Payments
$1,007.00
$613.80
Insurance
Loans/Guarantees
Others
The two categories of federal expenditures that have implications for procurement include contracts
and grants.


Contracts represent federal spending on the direct procurement of goods and services by
the US federal government, as reflected in the Federal Data Procurement System (FDPS).
Grants (including Cooperative Agreements) represent the “legal instrument reflecting the
relationship between the United States Government and a state, a local government, or
other entity.”3
In general, grants have been a major component of the non-defense federal budget and are used to
support a wide range of state and local functions, including education, transportation, sanitation,
and community development. Grants can be unrestricted for use in a general purpose (block grants)
2
USAspending.gov, Prime Award Spending Data, FY2010 (An official Web Site of the United States Government)
<http://www.usaspending.gov/index.php?q=node%2F3&fiscal_year=2010&tab=By+Agency>.
3 Federal Grant and Cooperative Agreement Act of 1977, Title 31 Section 6304 of the U.S. Code. "...legal instrument
reflecting the relationship between the United States Government and a State, a local government, or other entity when 1)
the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to
carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by
purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and 2)
substantial involvement is not expected between the executive agency and the State, local government, or other recipient
when carrying out the activity contemplated in the agreement."
2
U.S. Federal Grants for Procurement Purposes
or they may be restricted for specific projects (formula/categorical or project grants). Grants are
often used to support the procurement of goods and services for a governmental purpose by state
and local governments.
C.
U.S. Federal Spending on Federal Grants
In 2010, total federal government spending amounted to roughly $3.5 trillion4. Of total spending,
approximately $538.5 billion represented direct federal procurement of goods and services
(approximately 15% of overall spending). Of this, an estimated $170.8 billion (approximately 4.8%
of overall spending) was related to non-defense procurement.5
By contrast, $613.8 billion of federal spending was allocated to grants to assist state and local
governments.6 A significant portion of these grants are for health and human services (e.g $368.6
billion) and education (approximately $90.6 billion). Nonetheless, there are several federal grant
programs that support public works infrastructure development by state and local governments.
Department of Transportation
Department of Transportation grant programs currently have Buy America restrictions.
In 2010, Department of Transportation’s (DOT) overall spending was approximately $78.2 Billion7,
of which only $6.1 billion (approximately 8%) was spent on direct procurement and subject to
international trade commitments. In contrast, the DOT transferred $72.1 billion8 to state and local
governments in the form of grants, representing approximately 92% of DOT’s overall spending.
While some of these funds were used to support operational costs (e.g., salaries and wages and
other operational expenses), a considerable amount was spent by local governments for the
procurement of goods and services for public infrastructure, including for the operation,
maintenance and construction of airports, highways and mass transit systems.
Various DOT agencies administer federal grants to state and local authorities, notably the Federal
Highway Administration (FHWA), the Federal Transit Administration (FTA), the Federal Aviation
Administration (FAA) and the Federal Railroad Administration (FRA). In total, these agencies
provided $71.7 billion in financial assistance to state and local governments.

The FHWA provides financial assistance to states for the construction and maintenance of
roads and highways, as well as technical assistance to other agencies and organizations
involved in road building activities. In 2010, the FHWA granted approximately $53.2 billion to
states9. Major recipients of these funds included state governments and local authorities in
Texas ($4.7B), California ($4.2B) and Florida ($2.8B).
4
U.S. Office of Management and Budget, Fiscal Year 2010 Historical Tables , Budget of the U.S. Government,
<http://www.whitehouse.gov/omb/budget/Historicals>.
5 Federal Data Procurement System, Federal Contract and Action Dollars (FY2010) <http://www.fpds.gov>. In 2010, the
U.S. Department of Defense awarded contracts valued at $367.7 billion.
6 USAspending.gov, Ibid.
7 USAspending.gov, Ibid.
8 Ibid.
9 Ibid.
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U.S. Federal Grants for Procurement Purposes

The FTA provides financial and technical assistance to local public transit systems and
provided approximately $13.2 billion10 in federal grants in 2010. Major recipients of these
funds included local transit systems in New York ($2.8B) and California ($1.7B).

The FAA provides grants to public-use airports for the planning and development of projects
intended to support aircraft operations. The vast majority of the over 3,300 airports in the
United States that are eligible to receive financial assistance are government entities, such
as airport and port authorities. In 2010, roughly $4.3 billion was transferred directly to
airports. The top recipients included Alaska ($340.7M), Texas ($340.3M) and California
($281.2M).

The FRA is the federal agency responsible for the regulation, support and development of
the United States’ railway programs and national railroad infrastructure. In 2010, the FRA
provided $975.6 million for a number of railway improvement programs. Major recipients of
these funds included California ($611.8M) and Alabama ($66.7M), together receiving 70% of
total FRA grants.
Environmental Protection Agency
These funding programs do not currently have Buy America restrictions attached to them, although
efforts have been made in Congress to extend Buy America to them.
In 2010, overall spending by the Environmental Protection Agency (EPA) amounted to roughly $6.7
billion, including spending in the area of water and wastewater. Of this total, approximately $1.7
billion (approximately 3%) was spent on direct procurement and subject to international trade
obligations. By contrast, the EPA transferred $5.1 billion11 in grants to state and local governments,
representing 76% of overall spending by the EPA. A significant proportion of this funding is used for
the procurement of goods and services for public infrastructure by local governments.
The EPA oversees federal funds administered at the state level under various programs, notably the
Clean Water State Revolving Fund (CWSRF) program and the Drinking Water State Revolving
Fund (DWSRF). Together, these two programs represent 76% of total grant spending in 2010.

The CWSRF is the U.S. government’s clean water financing program. In 2010, the federal
government allocated $2.4 billion for capitalization grants under this CWSRF.12 As of 2009,
the federal government had contributed $28.8 billion in CWSRF capitalization grants since
the creation of the program in 1998, and states had added another $5.7 billion in matching
funds.13

The DWSRF program is the U.S. government’s primary public financing source for
infrastructure improvements of public drinking water systems. The program operates as a
federal/state partnership focused on protecting human health by helping utilities finance
infrastructure to sustainably provide safe drinking water.14 In 2010, the federal government
10
Ibid.
USAspending.gov, Ibid.
12 Budget of the U.S. Government, Fiscal Year 2010, Appendix, p. 1092 <http://www.gpo.gov/fdsys/pkg/BUDGET-2010APP/pdf/BUDGET-2010-APP.pdf>
13 Environmental Protection Agency, Clean Water State Revolving Fund Programs 2009 Annual Report, p. 32
<http://water.epa.gov/grants_funding/cwsrf/upload/2009_CWSRF_AR.pdf>.
14 Environmental Protection Agency, Drinking Water State Revolving Fund: 2009 Annual Report, p.4
<http://water.epa.gov/grants_funding/dwsrf/upload/dwsrf-annualreport2009nov2010.pdf>
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U.S. Federal Grants for Procurement Purposes
allocated $1.5 billion for capitalization grants under DWSRF. As of 2009, the federal
government had contributed approximately $10.7 billion in DWSRF capitalization grants
since the commencement of the program in 1997, and the states had added another $2.2
billion in matching funds.15
Department of Housing and Urban Development
In 2010, overall spending by the Department of Housing and Urban Development (HUD) amounted
to $39.0 billion16. Of this total, only $1.7 billion (roughly 4%) was spent on direct procurement.
Another $19.0 billion was transferred in the form of grants to state and local governments for
specific functions relating community and urban development and income security. While this
financial assistance also included other operational costs, largely relating to funds for income
security, a proportion of the remaining funds are used for the procurement of goods and services by
sub-federal entities, primarily at the local government level.
The three largest programs within the HUD portfolio which have potential implications for
government procurement are the Community Development Block Grants Program (CDBG), the
Public Housing Capital Fund (PHCF) and the Home Investments Partnerships Program (HOME).
Both CBDG and PCHF support community and regional development and the HOME program
supports income security. Together these three programs represent 54% of total grant spending in
2010.

The CBDG program provides flexible annual formula grants to state and local governments
to benefit mainly low- to moderate-income persons. The program provides funds annually to
approximately 1209 state and local government entities across the United States for the
development and modernization of affordable housing and for the creation of jobs within
depressed communities. Grant recipients include states, cities and urban counties, where
annual funds are allocated between jurisdictions by “entitlement” (larger cities and urban
counties) and “non-entitlement” (small cities). In 2010, the CBDG provided $5.3 billion in
entitlement grants and $2.5 billion in non-entitlement grants, which together totalled $7.8
billion.17 Top entitlement recipients were located in California ($434.8M) and New York
($309.2M) and top non-entitlement recipients were located in Texas ($1.8B), Louisiana
($1.2B) and Iowa ($545.2M). Over the past ten years, the federal government has
appropriated nearly $41.8 billion in funds for the CDBG program, including a supplemental
appropriation of $1.0 billion in through the American Recovery and Reinvestment Act of
2009 (ARRA).

The PCHF provides funds annually via a formula to approximately 3,300 local public housing
authorities across the United States.18 In 2010, the PCHF budget totalled $2.2 billion19. As of
2010, the federal government had appropriated nearly $36.0 billion in funds for the PHCF
since the commencement of the program in 1999.

HOME is the largest federal block grant to state and local governments designed exclusively
to create affordable housing for low-income households. HOME provides formula grants to
15
Environmental Protection Agency, Drinking Water SRF Program Information National Summary (2009) p. 4,
<http://www.epa.gov/safewater/dwsrf/nims/dwus09.pdf>
16 USAspending.gov, Ibid.
17 Ibid.
18 Department of Housing and Urban Development, About Us: Office of Capital Improvements – Office of Public Housing
Investments,<http://www.hud.gov/offices/pih/programs/ph/capfund/aboutus.cfm>
19 Budget of the U.S. Government, Ibid, p. 572.
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U.S. Federal Grants for Procurement Purposes
state and local governments that communities then use to fund a wide range of activities,
often in partnership with non-profit groups. Procurement activities include the new
construction and rehabilitation of affordable housing. In 2010, HOME provided $2.8 billion20
in financial assistance, and allocates approximately $2 billion among states and hundreds of
localities each year.21
Department of Energy
In 2010, overall spending by the Department of Energy amounted to $43.6 billion22. Of this total,
approximately $25.7 billion was spent on direct procurement and $17.8 billion was transferred from
the federal government in the form of grants to state and local governments23. While the majority of
these funds supported research and development activities and other operational costs, a
proportion of the grants supported the procurement of goods and services for public infrastructure.
The largest programs that have potential implications for government procurement are the Energy
Efficiency and Conservation Block Grant (EECBG) program and the State Energy Program
(including the State Energy Program Special Projects).

The Energy Efficiency and Conservation Block Grant program (EECBG) provides financial
and technical assistance to assist state and local governments create and implement a
variety of energy efficiency and conservation projects. Examples of procurement activities
include transportation infrastructure, purchasing technologies to reduce and capture
methane and other greenhouse gases generated by landfills and installing renewable energy
technologies on or in any government building. In 2010, the EECBG provided approximately
$1.7 billion to state and local governments. Major recipients included California ($227.9M),
Florida ($102.6M) and Texas ($102.1M).24

The State Energy Program provides financial and technical assistance to state governments
to create and implement a variety of energy efficiency and conservation projects. The
objectives of the program are to reduce fossil fuel emissions as a result of activities within
the jurisdictions of eligible entities; reduce total energy use of eligible entities; and improve
energy efficiency in the transportation, building and other sectors.25 In 2010, the State
Energy Program provided $44.1 million. In addition, the State Energy Program Special
Projects provides competitive funding to states to implement activities relating to a number of
areas, such as building codes standards, alternative fuels, industrial efficiency, building
efficiency, and solar and renewable technologies. The Special Projects program provided
$9.7 million in competitive grants to state governments. Together, both programs totalled
$53.8 million in 2010.
20
U.S. Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2010 Historical Tables: Total
Outlays for Grants to State and Local Governments by Function, Agency and Program: 1940-2013.
<http://www.whitehouse.gov/omb/budget/Historicals>.
21 Department of Housing and Urban Development, HOME Investment Partnerships Program,
<http://www.hud.gov/offices/cpd/affordablehousing/programs/home/>.
22 USAspending.gov, Ibid.
23 Ibid.
24 Ibid.
25 Catalogue of Federal Domestic Assistance, State Energy Program, Department of Energy,
<https://www.cfda.gov/?s=program&mode=form&tab=step1&id=cc22a2b25658a35f63956fdddef6991f>
6