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INTERGOVERNMENTAL FISCAL RELATIONS
Correspondence
Tax Systems
Grants
State and School Aid
Mandates
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Basic Principle of Fiscal Federalism
• Geographic Matching -- decision unit coincides with beneficiaries from service provision (who also bear the burden of service provision)
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Tax Systems• Federal = Income & Payroll
Taxes• State = Sales Taxes• Local = Property Taxes &
User Fees
Correspondence principle
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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
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Justifications
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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)
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Types of grants
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Grants• Revenue Sharing• Block Grants• Categorical Grants
• Formula (need contingent -- directly addressed to fiscal disparities)
• Project (deserving -- need plus political considerations)
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State School Aid• Flat Grants, General, and Categorical• Foundation Grants
SC = F(ADA) - c(PTB) ≥ 0LC = r(PTB)
TC = F(ADA) + (r-c)(PTB), orSC + LC
Where: SC = State Aid > 0, LC = Local ContributionF = Foundation Amount Per Pupil
ADA = Pupils in Average Daily Attendancec = Computational Tax Rate, r = Actual Tax Rate
PTB = Property Tax Base
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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
$25K+$150K
Where: SC =, LC = Local ContributionF = $1000
ADA = 100c = 1.5%, r = 1%
PTB = $5M
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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
$25K+$50K
Where: SC =, LC = Local ContributionF = $1000
ADA = 100c = 1.5%, r = 1%
PTB = $5M
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State School Aid• Guaranteed Tax Base Grants
(Percentage or Power Equalizing)
SC = r(STB*ADA) - r(PTB)LC = r(PTB)TC = r(STB)
STB = ADA(stb)
Where: SC = State Aid > 0, LC = Local ContributionR = Locally set property tx rate
stb = Standard Tax Base Per Per PupilADA = Pupils in Average Daily Attendance
PTB = District Property Tax BaseSTB = Statewide Property Tax Base
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State School Aid• Guaranteed Tax Base Grants
(Percentage or Power Equalizing)
SC = 1%($100K*100) - 1%($5M) ≥ 0,$50K = $100K - $50K
LC = $50KTC = $100K = 1%($100K*100), or
$50K + $50K
Where: r = 3%stb = $100KADA = 100PTB = $5M
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State School Aid• Guaranteed Tax Base Grants
(Percentage or Power Equalizing)
SC = 3%($100K*100) - 3%($5M) ≥ 0,$150K = $300K - $150K
LC = $150KTC = $300K = 3%(100K*100), or
$150K + $150K
Where: r = 3%stb = $100KADA = 100PTB = $5M
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State School Aid• Guaranteed Tax Base Grants
(Percentage or Power Equalizing)
SC = 3%($100K*100) - 3%($15M) ≥ 0,-$150K = $300K - $450K
LC = $450KTC = $300K = 3%(100K*100), or
-$150K + $550K
Where: r = 3%stb = $100KADA = 100
PTB = $15M
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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 > 0, LC = Local ContributionAi = Grant amount for student type I
t = maximum allowable district tax rateADA = Pupils in Average Daily Attendance
PTB = Local Property Tax Base
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State School Aid• Guaranteed Per-pupil Revenue Grants
(Support Per Student Equalizing)
SC = $1500(100) - 1.5%($5m), $150K - $75K = $75K
LC = $75KTC = $150K, or $75K + $75K
Where:Ai = $1500t = 1.5%
ADA = 100PTB = $5m
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State School Aid• Guaranteed Per-pupil Revenue Grants
(Support Per Student Equalizing)
SC = $1500(100) - 1.5%($15m), $150K - $225K = -$75K
LC = $225KTC = $150K, or -$75K + $225K
Where:Ai = $1500t = 1.5%
ADA = 100PTB = $15m
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Drawbacks
He who pays the piper calls the tune
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Mandates• Internalizing Externalities• Nationwide/Statewide
uniformity in service delivery• Tax shifting
Un-funded Mandates Reform Act of 1995
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