INTERGOVERNMENTAL FISCAL RELATIONS

1
INTERGOVERNMENTAL FISCAL RELATIONS

• Correspondence
• Tax Systems
• Grants
• State and School Aid
• Mandates

2
Basic Principle of Fiscal Federalism

• Geographic Matching -- decision unit coincides
  with beneficiaries from service provision (who
  also bear the burden of service provision)

3
Tax Systems

• Federal Income Payroll Taxes
• State Sales Taxes
• Local Property Taxes User Fees

Correspondence principle
4
Objectives of this bloc of instruction

• Understand justifications for intergovernmental
  aid
• Recognize types of intergovernmental aid
• Appreciate some of the drawbacks associated with
  intergovernmental aid

5
Justifications
6
Violations of correspondence principle

• Economies of Scale and Scope?
• Local knowledge (better or worse)
• Fiscal Disparity (ability to pay)
• Overlapping jurisdictions
• Tax limits (statutory and competitive)

7
Types of grants
8
Grants

• Revenue Sharing
• Block Grants
• Categorical Grants
• Formula (need contingent -- directly addressed to
  fiscal disparities)
• Project (deserving -- need plus political
  considerations)

9
State School Aid

• Flat Grants, General, and Categorical
• Foundation Grants
• SC F(ADA) - c(PTB) 0
• LC r(PTB)
• TC F(ADA) (r-c)(PTB), or
• SC LC
• Where SC State Aid gt 0, LC Local
  Contribution
• F Foundation Amount Per Pupil
• ADA Pupils in Average Daily Attendance
• c Computational Tax Rate, r Actual Tax Rate
• PTB Property Tax Base

10
State School Aid

• Flat Grants, General, and Categorical
• Foundation Grants
• SC 1000(100) - 1.5(5M),
• 25K 100K - 75K
• LC 150K 3(5M)
• TC 175K 100K 75K, or
• 25K150K
• Where SC , LC Local Contribution
• F 1000
• ADA 100
• c 1.5, r 1
• PTB 5M

11
State School Aid

• Flat Grants, General, and Categorical
• Foundation Grants
• SC 1000(100) - 1.5(5M),
• 25K 100K - 75K
• LC 50K 1(5M)
• TC 75K 100K - 25K, or
• 25K50K
• Where SC , LC Local Contribution
• F 1000
• ADA 100
• c 1.5, r 1
• PTB 5M

12
State School Aid

• Guaranteed Tax Base Grants
• (Percentage or Power Equalizing)
• SC r(STBADA) - r(PTB)
• LC r(PTB)
• TC r(STB)
• STB ADA(stb)
• Where SC State Aid gt 0, LC Local
  Contribution
• R Locally set property tx rate
• stb Standard Tax Base Per Per Pupil
• ADA Pupils in Average Daily Attendance
• PTB District Property Tax Base
• STB Statewide Property Tax Base

13
State School Aid

• Guaranteed Tax Base Grants
• (Percentage or Power Equalizing)
• SC 1(100K100) - 1(5M) 0,
• 50K 100K - 50K
• LC 50K
• TC 100K 1(100K100), or
• 50K 50K
• Where r 3
• stb 100K
• ADA 100
• PTB 5M

14
State School Aid

• Guaranteed Tax Base Grants
• (Percentage or Power Equalizing)
• SC 3(100K100) - 3(5M) 0,
• 150K 300K - 150K
• LC 150K
• TC 300K 3(100K100), or
• 150K 150K
• Where r 3
• stb 100K
• ADA 100
• PTB 5M

15
State School Aid

• Guaranteed Tax Base Grants
• (Percentage or Power Equalizing)
• SC 3(100K100) - 3(15M) 0,
• -150K 300K - 450K
• LC 450K
• TC 300K 3(100K100), or
• -150K 550K
• Where r 3
• stb 100K
• ADA 100
• PTB 15M

16
State School Aid

• Guaranteed Per-pupil Revenue Grants
• (Support Per Student Equalizing)
• SC Ai(ADA) - t(PTB),
• LC t(PTB)
• TC Ai(sumADAi) - (t-r)(PTB)
• Where SC State Aid gt 0, LC Local
  Contribution
• Ai Grant amount for student type I
• t maximum allowable district tax rate
• ADA Pupils in Average Daily Attendance
• PTB Local Property Tax Base

17
State School Aid

• Guaranteed Per-pupil Revenue Grants
• (Support Per Student Equalizing)
• SC 1500(100) - 1.5(5m),
• 150K - 75K 75K
• LC 75K
• TC 150K, or 75K 75K
• Where
• Ai 1500
• t 1.5
• ADA 100
• PTB 5m

18
State School Aid

• Guaranteed Per-pupil Revenue Grants
• (Support Per Student Equalizing)
• SC 1500(100) - 1.5(15m),
• 150K - 225K -75K
• LC 225K
• TC 150K, or -75K 225K
• Where
• Ai 1500
• t 1.5
• ADA 100
• PTB 15m

19
Drawbacks

• He who pays the piper calls the tune

20
Mandates

• Internalizing Externalities
• Nationwide/Statewide uniformity in service
  delivery
• Tax shifting
• Un-funded Mandates Reform Act of 1995