Study finds federal grants can fuel local corruption

• A new study shows a strong correlation between federal grants and increased public corruption charges among local officials. It attributes the problem to a lack of oversight.

• The presence of large federal grants, or “windfalls,” is associated with a 28% increase in public officials charged with corruption –– a relationship that is further intensified by the closure of local newspapers.

• While federal grants include oversight measures, effective oversight relies heavily on state and local governments. It can be inadequate, leading to potential misuse of funds.

---

Full Story

A new study shows local governments that receive large federal grants are much more likely to see one or more public officials charged with corruption. Researchers from Loyola University of Chicago and George Washington University released the report “Windfall federal grants and local government corruption” on Feb. 18. 

The expansive study tracked all identifiable local public officials charged with corruption between 2005 and 2018, reflecting 1,174 local public criminal defendants.

The researchers found a strong correlation between federal grants, referred to in the study as windfalls, and instances of public corruption. The data also showed a strong correlation between federal windfalls and public sector employees facing corruption charges in the following two years. 

“The economic magnitude is significant, with the presence of a windfall associated with a 28% increase in public officials charged,” the report said.

The study controlled for the size of the government receiving the grants, audit capacity and the presence of local news outlets to scrutinize public officials. 

“We use the shock of a local newspaper closure to assess whether local press presence affects the windfall-corruption relationship,” the report said. “A difference-in-differences analysis suggests that the relationship between windfalls and local corruption increases following closure of a daily newspaper in the same county.”

The report notes that federal grants have oversight attached. Still, they rely on state and local government oversight to deter abuse of those funds. 

The federal government sent $1.2 trillion to various levels of government across the country in 2022, most of which came in the form of COVID-19 pandemic aid. Units of government that represented a smaller number of residents often had to apply to the state for the aid. It came with steps to ensure the funding was being used properly. 

In October 2024, the Department of Justice announced that a county supervisor in Orange County pleaded guilty to a felony federal charge for accepting more than $550,000 in bribes for directing more than $10 million in COVID-19 funds to a charity affiliated with one of his daughters.