Fiscal Questions and Political Answers in Intergovernmental Finance

Abstract

This article is devoted to the political analysis and understanding of certain fiscal questions affecting federal-state-local relations in the United States today. This seemingly obvious point must be made at the outset because it is too easy, when dealing with fiscal questions, to substitute economic for political answers. Perhaps the most prominent example of this is the oft-encountered tendency to assess the respective policy roles of the various American governments by ascertaining what share of the total expenditure they contribute to the funding of specific programs. This short-hand but often misleading view is frequently encountered in the mass media where local programs are presented as federal ones on the assumption that the source of the funds also indicates the locus of political control, a view that has been refuted time and again by studies of a whole host of intergovernmental programs. In recent years there have been a number of studies of intergovernmental financing in the United States which have attempted to assess the economic impact of various kinds of intergovernmental fiscal relationships, devices, and arrangements, with varying degrees of success. If the economic impacts are hard to assess, the political ones are even more difficult. For one thing, they cannot be derived from the easily available quantitative data. Rather, they require sophisticated probing beneath the surface and examination of specific cases in light of the development of intergovernmental collaboration over the nearly two centuries that have elapsed since the founding of the Republic. The issue is further complicated because, even if the impacts are not identical, in many cases they coincide. For example, it is of both political and economic significance that state and local expenditures combined exceed federal expenditures for domestic civil purposes by a ratio of approximately two to one. The radical increase in the number of federal grant programs since 1953 and the amount of federal funds allocated to those programs since 1964 are also significant in both respects. By the same token, so are the changing ratios of support in specific programs. Consequently, we cannot be too careful in avoiding the use of economic tests of significance to draw political conclusions that may not be warranted when the political evidence is given primacy. There are a number of apparent trends in intergovernmental fiscal relations which are easily recognizable: 1. While all governmental spending is rising, the federal share of total state and local expenditures is increasing at an even faster pace. 2. Direct federal-local relations in funding specific programs are also increasing. 3. State aid to localities, through grants and revenue sharing, is increasing even more rapidly than federal aid.