FROM MASSACHUSETTS mill towns to Southern California suburbs, local police, fire, and emergency management agencies are using a cascade of new federal homeland security grants to go shopping. They've bought some $6 billion worth of chemical weapons suits, emergency command centers, laser-assisted crime-scene-reconstruction devices, and other gadgets and gizmos purporting to help fight terrorism. But for all the new "boots and suits," the people who lead America's public safety agencies aren't satisfied. Through organizations ranging from the U.S. Conference of Mayors to the International Association of Chiefs of Police, they complain bitterly about the Bush administration's state and local homeland security policies. And with reason.

The Department of Homeland Security, they say, is both too centralized and not centralized enough: It funds wish lists but provides little strategic guidance. It devolves powers to the states that belong at the federal level, while ignoring the on-the-ground concerns of local police and fire agencies.

New York City is a case in point. Although it has received at least $200 million in grants to buy hardware, and the police and fire departments have redeployed personnel and remade command structures, the Big Apple might have difficulty responding to a second major terrorist attack. The 9/11 commission was right when it observed in May that serious coordination problems hampered the evacuation of the Twin Towers. But three years later, New York City's police and fire departments still lack a workable joint command structure for allocating resources during a crisis. While radio communications have improved, the metropolitan area has no unified strategy for distributing information to the more than 600 public safety agencies that would have immediate concerns if Manhattan were attacked again.

Given the vast scope and complexity of the challenge, it is hardly surprising that homeland security policy still falls short. One process reform, however, that could curb the misplaced focus on acquisitions and pay large dividends in improved planning and response capability at the local level is a change in the way Washington sends money to localities.

With minor exceptions, the programs that Congress and the Bush administration have rolled out since 9/11 have provided block grants. Block grants are to states and localities what entitlements are to citizens: money that flows to them automatically from the federal government. Most of the money goes to state bureaucracies, which keep some of it for overhead, then pass most of the rest down to localities.

Block grants serve a variety of purposes. The Transportation Security Administration, for example, has given grants to ports and airports to improve baggage and cargo-container security. The Justice and Homeland Security departments, meanwhile, hand out money on the basis of formulas that can include anything from a state's population to the number of ships that call at its ports. But these formulas are not always fair; for one thing, they inevitably give a minimum sum to every state, regardless of population or density of vulnerable sites. Thus, in a round of grants released in April, Wyoming got nearly $39 per citizen while New York state, home of the nation's number one target, got less than $6. Nevertheless, the administrative simplicity of formula grants, and the lure of easy money for their recipients, have made them popular with Congress. Sen. Hillary Clinton has pushed hard for a $3 billion program to give homeland security block grants directly to cities.

But there's a better way to hand out funds for public safety. The first Bush and the Clinton administrations relied on competitive program grants. To win these grants, states and localities had to submit proposals designed to demonstrate that they had come up with the best possible use for a given pot of money. The proposals were then ranked by experts theoretically insulated from political pressure, and the best were awarded funds. In reality, the process is a lot messier--nearly all major competitive grant programs ensure that every state gets at least some money and that small towns with modest grant-writing resources get their share. Still, competitive grants offer three advantages: They encourage innovative thinking, they allow the designers of each competition to provide implicit strategic guidance without intruding upon local prerogatives, and they are likelier to send money where it will be used well.

With competitive grants, says Lowell, Mass., police superintendent Edward Davis, "you get more money only if you're the best." At any given time, some public safety agencies will have better ideas and more acute needs than others. And knowing that funding might not come keeps localities on their toes. It means that they can never relax, a state of affairs that concentrates the mind and spurs innovation. Many of the new police tactics that led to the epic decline in crime in the 1990s--Chicago's high-speed case-file processing, New York's crackdown on minor offenses, San Diego's successful anti-graffiti efforts--were conceived in a climate of experimentation produced in part by the need to compete for funds. A similar funding structure for homeland security would likely produce a tidal wave of innovation.

Replacing block grants with competitive grants would also help the Department of Homeland Security provide guidance without resorting to coercion or excessive intrusion. Many aspects of homeland security require strong federal leadership. Getting radio systems to work together--a key problem New York City agencies encountered on 9/11--for example, requires common standards. DHS should impose them. Unfortunately, when states and cities have a de facto entitlement to money, they feel little compulsion to obey, and federal bureaucrats know they will face angry members of Congress if they deny funding requests over minor failings.

So far, this is exactly what has happened. Block grants currently require that localities have in place "incident command structures" for coordinating police, fire, and rescue resources during emergencies. But New York City's police and fire departments couldn't agree on an incident command structure, and in May, Mayor Michael Bloomberg imposed one. Even the new structure, however, leaves responsibility for many types of incidents unclear and, as a result, may violate the requirements for block grants. Dozens of other cities have ignored federal rules much more blatantly, and none has lost money as a result. While competitive processes are not immune to political pressure, they make it easier for federal officials to say no when cities and states ignore directives.

Finally, competitive grants are more likely than block grants to send funds where they are most needed. The primary all-purpose DHS grant program--Basic Homeland Security Formula Grants--gave so much money to lightly populated states and so little to large cities that Congress and the administration created a supplemental $894 million Urban Area Security Grants program to aid big cities directly. This program also had problems: It based many of its calculations on size and population density. As a result, large but out-of-the-way cities like Memphis got cash, while small, target-rich cities like Los Alamos, New Mexico, were out of the running.

The abundance of potential targets and the difficulty of identifying them makes it impossible to come up with a foolproof formula for handing out money to the entire country. Indeed, DHS itself may take as long as five years to complete its first analysis inventory of the nation's critical infrastructure. In the meantime, the nation will be better off if cities, counties, and states--which should know their own vulnerabilities--have to make the case for deserving federal help. This process could go far toward quickly providing DHS with a detailed map of the relevant infrastructure, even as it forces local leaders to think hard about security priorities and end their wasteful buying sprees.

Eli Lehrer is associate editor of The American Enterprise.

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