The White House is rethinking grantmaking. What does it mean for aid?

The U.S. government is rewriting its guidance on federal grants, a change that could affect how USAID — and other federal agencies — give money across the world. By removing entry barriers, slashing complex language, and making grants more accessible, the Biden-Harris administration is hoping to streamline the government’s grantmaking processes, a change that could bring more local, grassroots organizations into the fold. Proposed shifts in the rules could help local organizations in many ways — increasing overheads, addressing language barriers, simplifying registration on U.S. government systems. “Complexity benefits the entrenched, complexity benefits the powerful, complexity benefits the people who know the system and the rules. And it locks out everybody else who doesn't,” said Walter Kerr, executive director of Unlock Aid, a lobbying group that campaigns to break down barriers in procurement. “We have to fix these types of thorny, complicated, in-the-weeds challenges if we actually want people to benefit from public resources.” Why changing the grant guidance matters The change would be hugely influential for domestic grants, as up to a third of U.S. state budgets are typically paid for by federal assistance, according to a press release from the Biden-Harris Administration. But those implications would also be felt internationally, as USAID — one of the biggest players in development funding — would be required to follow them too. Last year, the agency obligated $16.2 billion via grants to international organizations, U.N. agencies, and others across the world. “Foreign aid is less than 1% [of the federal budget], so we’re just a sideshow in all of this,” said Justin Fugle, head of policy at Plan International, an INGO that works closely with USAID. “But at the same time, these changes are very important for the way we’d like to change how development is done.” Many of those changes feed into USAID’s localization efforts. By 2025, the agency is trying to shift a quarter of its funding toward local organizations, which will require a sea change in the way aid is delivered. In 2022, just 10.2% of USAID’s funding went toward local organizations, and the following year, half of all the agency's grants — some $8.8 billion — went toward just 20 recipients. “Every week, there’s a version of this story happening, where some [Washington,] D.C. contractor gets funding instead of a more innovative or local organization that is more proximate to the problem,” said Kerr. “That’s partly because we’ve just built such a complicated, overly complex system.” The guidelines must still pass through a consultation process. But if they do, a major outcome would be the simplification of those systems, from reducing hefty compliance requirements to reducing red tape. The new document proposes a change to the requirement for a “unique entity identifier,” or UEI, for example, which can be difficult for organizations based outside of the United States to obtain. By loosening that prerequisite for subrecipients, smaller organizations working with a primary grantee won’t be blocked from participating due to registration issues, something that can arise due to internet access, language proficiency, or a group’s location in a remote area. On top of that, the administration is considering other ways of driving down the burden of obtaining a UEI, like granting a one-time, short-term UEI exemption for organizations in specific circumstances, the document states. Such a change, experts say, would allow organizations to jump to action in certain difficult, time-sensitive settings, such as a natural disaster. Another major revision included in the proposed guidelines includes allowing grant announcements to be translated into languages other than English — a move that would unlock programming in countries, regions, and communities where the language isn’t commonly used, Fugle explained. “That essentially says: We value your expertise enough that we’re going to translate this so you can fully understand what we’re asking for,” said Fugle. “It sounds small, but it’s so important. Without it, [the U.S. government] excludes an awful lot of organizations in countries where English is not one of the main languages.” There’s also a change to overhead costs. With this new guidance, aid recipients could use up to 15% of their grants to cover operating expenses. This represents a 5% increase from the current standard, although likely still less than the real cost of overheads. In a 2022 analysis of 38 nonprofits, Humentum — an organization focused on improving how such agencies operate — found that 63% of restricted grants to those nonprofits did not cover the full administration costs associated with their projects, in some extreme cases forcing some staff members to go without pay to balance the books. When will the guidance be ready? The guidance, which reads 473 pages in total, is expected to be finalized later this year. Once the federal Office of Management and Budget goes through the thousand-plus public comments, it will decide whether to proceed with the current document, issue a new or modified proposal, or ditch the changes altogether. Given the costs associated with the changes, which would include increased funding for overhead, for example, and the expense of translating announcements into various languages, its finalization is far from certain, Fugle said. “This is a rare opportunity to change the way that government functions,” said Fugle. “And if they don’t change this now, it’ll be years before they can change it again.”