State Agency Discretion in a Delegated Federal Program: Evidence from Drinking Water Investment

This article examines the use of discretion by state agencies in the context of multilevel policy. Research on agency discretion assumes that discretion represents a departure from legislative intent. However, Congress may delegate authority to promote policy innovation. Using data on investment in drinking water infrastructure from 2000 to 2008, we examine the relationship between agency discretion and functional expertise in implementing the Drinking Water State Revolving Fund program. We focus on two areas where states can exercise discretion: (i) projects not related to compliance with federal law and (ii) support to small water systems. Our results indicate that agency expertise influences investment, but problem severity reduces differences across agencies. Initial choices over agency design affect how states adapt federal programs to meet state needs.