The Funding of State and Local Governments: The Case for General Revenue-Sharing

The inherited pattern in the United States of funding of state and local governments mainly by taxation at their own levels is associated in much of the public mind with "local control."

This inherited funding pattern, however, has always had two great disadvantages:

1. There are vast inequalities in the public and social services delivered by state and local governments across wealthier and poorer regions and localities. These include large inequalities in expenditures per pupil in public education, which is an issue that in many states has been debated for decades with only uneven or little progress toward equality. This pattern means, further, that populations in economically depressed areas suffer the double disadvantage of extensive poverty and a poverty of public services, often where these are needed most.


2. Competition among the states to attract business locations means there is typically fierce opposition to increasing state-level taxation, because any state that does so can be at a significant disadvantage in attracting business locations, which can be crucial for achieving economic improvement. The business community and the Republican Party have perpetually hammered on this basic fact. The Democratic Party, on the other hand, has largely--though not wholly, in view of the many federal grants-in-aid programs--evaded this issue, because it has been either devoid of ideas or afraid to exercise political leadership by challenging present-day beliefs.

In the face of these realities, the optimum approach would be to move along a transition to funding of state and local governments mainly by general revenue-sharing out of the federal tax system on a population basis.

Unrestricted local control over the allocation of such funds, as distinct from the level of funding, could be preserved as a statutory right.

Such general revenue-sharing then would have two great advantages:

1. The funding of services delivered by state and local governments would be proportional to the size of the populations to be served, and would no longer have any connection with the wealth or poverty of given regions and localities.


2. The effect of inter-state competition to attract business locations in restricting the funding of services delivered by state and local governments would be circumvented altogether, for the tax level could be raised at the federal level with no disadvantage to any state in this inter-state competition.

Precisely for this reason, such a revamping of the American federal system would face intense opposition from all the forces demanding smaller government, including America's great business oligarchy.

The issue is what purposes ought to take priority.