Targeting Fiscal Assistance To Reduce Fiscal Disparities

GAO discussed the impact of the federal General Revenue Sharing Program on financially distressed communities. GAO noted that decreasing federal assistance has caused states and localities to finance more public services from their own funds, which in turn places a greater public services burden on governments serving poorer communities. GAO believes that targeting funds to lower-income communities will reduce fiscal disparities between low- and high-income communities, since: (1) the moderately targeted revenue sharing program reduced the revenue gap between these communities by approximately 15 percent for $4.6 billion; (2) a more targeted formula could achieve the same 15-percent level of disparity reduction for $2.4 billion; and (3) a highly targeted formula could achieve a 25-percent disparity reduction for $1 billion. GAO concluded that a successor to the General Revenue Sharing Program should focus on a highly targeted formula, since it could alleviate fiscal disparities at a substantially lower cost than general revenue sharing.