Revenue Sharing and the Intrastate Fiscal Mismatch: A Critical View

An important stated objective of the General Revenue Sharing (GRS) program is to reduce the fiscal mismatch among local governments, especially between the problem-ridden center cities and the more affluent suburbs. To do this, the GRS intrastate allocation formula was designed to allocate funds among localities inversely with per capita income, the measure both of need and per capita fiscal capacity. The basic findings from the analysis of intrastate formula distributions are: (1) relatively little equalization in the per capita income sense occurs among localities within stales, (2) there are substantial variations in the degree of equalization among states, and (3) the lac of and differences in equalization can largely be explained by the role of the tax variable in the formula. Therefore, the formula requires change if it is to perform its equalization role satisfactorily. Some proposals formula change are made.