The design of a dynamic allocation mechanism for the federal energy assistance program LIHEAP

Abstract

A dynamic allocation mechanism for the Low-Income Home Energy Assistance Program (LIHEAP) is designed and analyzed using a theoretical decision-making framework. LIHEAP is a federal block grant program established in 1981 to help low-income households meet a portion of their home energy costs. The manner in which LIHEAP funds are allocated to states, however, has been a contentious issue since the inception of the program with many warm-weather states objecting to the distribution formula since it did not adequately address the cooling requirements of their states. In 1984, the Health and Human Services developed a more equitable formula by incorporating state cooling requirements in an equal weighting scheme with state heating requirements. In addition to the new distribution formula, various provisions were also legislated that specified when and how the 1984 formula could be employed. These provisions have turned out to be so constraining that they have effectively disabled the 1984 formula, and the consequence of the amendments is that an ad hoc and arbitrary formula for allocating funds among states continues to be applied. The purpose of this paper is to design a dynamic allocation mechanism that adjusts the provisions of the LIHEAP statute relative to the level of the regular appropriation. Specifically, the trigger level that enables the 1984 formula is considered a design parameter and the effect of a trigger level reduction on state allotments is described. The LIHEAP statute is quantified and the allocation percentages are represented in terms of a “universal tableaux.” System functionals that quantify the capital transfer between recipient states is defined and empirically constructed. The probability of realizing a fair allotment is computed as a function of various decision parameters.