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The comparisons of Table I and II indicate significant differences between the allotments which certain states would receive under the current formula and under the two recommended alternatives. This situation implies that, if either new formula were introduced immediately, some states would experience substantial reductions in their allotments, while other states would experience substantial increases. Though either of the two recommended formulas will ultimately distribute funds more equitably than the current formula, it must be insured that the introduction of a new formula will not significantly disrupt the on-going VR programs in the states. Το

avoid these abrupt changes, two methods by which a new formula may be introduced for FY 1976 were considered.

1. Hold-Harmless Funds. Apply the new formula to the total
Federal VR authorization, with the proviso that no state
receives less than its FY 75 allotment.

2. Five-Year Transition. Over the next five years, apply the
new formula to 20% more funds each year, so that by the fifth
year all funds are allocated under the new formula. Specifically,
the five-year transition is defined as follows. For each of the
five years beginning with FY 1976, calculate two allotments for
each state: that which it would have received under the current
(Hill-Burton) formula, and that which it would have received
under the new formula (with no FY 1975 minimum). Then calculate
the difference between the two allotments for each state. The
first year, each state would receive an allotment equal to its
allotment under the Hill-Burton formula plus 20% of this differ-
ence (if its allotment under the new formula would have been
greater) or minus 20% of the difference (if its allotment under
the new formula would have been less). The second year, each
state's allotment would be calculated as above, only with the
inclusion of 40% of the difference. Finally, after 5 years, the
new formula would be completely in effect.

dered.

Initially,

two alternative "hold-harmless" methods were consi

In the first hold-harmless method, the new formula was applied only to

the increment in Federal funding after FY 1975, and each state was
guaranteed to receive, as a base, an amount equal to its FY 1975 allotment.
The second hold-harmless method was described in (1) above. The latter
procedure is equivalent to allocating new funds only to states that would
gain under a new-formula, no-hold-harmless allocation.
The former proce-

dure was discarded, since it represented a slower transition to the new
formula.

Since Standard Formulas 1 and 2 are similar in their allotment characteristics, the properties of each transition method have been illustrated only for Standard Formula 1. The results will be quite similar for Standard Formula 2. Clearly, if no growth occurs in the total allotment, the "holdharmless" transition procedure results in no change in the allotments

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the new formula never has any effect. Table III illustrates the effect of the hold-harmless transition, under the assumption that the total allotment increases by $60 million per year for five years. Even with this moderate (and perhaps optimistic) growth rate, Table III illustrates that the pure hold-harmless transition effectively nullifies the intent of the new formula until the total allocation level rises above $800 million.

Because of the declining rate of increase of VR allocation funds, it is unreasonable to depend solely on program growth to bring about the transition to a new formula. Tables IV and V indicate, for the "Five Year Transition" procedure, the transition from the current formula to Standard Formula 1.

Table IV assumes a "no-growth" situation, in which the total allotment remains at $680 million for the next five years. Table V assumes a "moderate/optimistic" growth of $60 million per year in the total allotment.

TABLE III.

EFFECT OF "HOLD-HARMLESS" TRANSITION TO STANDARD FORMULA 1
$60 MILLION PER YEAR GROWTH IN TOTAL ALLOTMENT.

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TABLE IV.

EFFECT OF "FIVE YEAR TRANSITION" PROCEDURE TO STANDARD FORMULA 1
NO GROWTH IN TOTAL ALLOTMENT.

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