Removing Tiering From the Revenue Sharing Formula Would Eliminate Payment Inequities to Local Governments

GGD-82-46: Published: Apr 15, 1982. Publicly Released: Apr 15, 1982.

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GAO reviewed the inequities in the distribution of General Revenue Sharing funds which are caused by the statutory tiering procedure. Under this procedure, funds are first allocated to county geographic areas before being allocated to individual jurisdictions within the county. This review provides Congress with a comprehensive analysis of the effect tiering has on funding distribution patterns.

GAO found that revenue sharing allocations to city and township governments result from three sources: (1) the three formula elements of population, relative income, and tax effort applicable to each unit of local government; (2) statutory formula constraints; and (3) the statutory tiering distribution procedure. The effect of the three formula elements is well understood; more aid is allocated to units of local government with more people, low per capita income, and high tax effort. What is not generally understood is that the tiering process causes payment inequities at two stages in the distribution process. Throughout a state, the tiering procedure reduces funding to the governmental types with residents, that on an average, have relatively low incomes. In states characterized by rural poverty, tiering benefits most cities and penalizes the governmental type with a higher concentration of low income residents. Therefore, the targeting of revenue sharing funds to those governmental units which, on the average, contain the nation's low-income population could be enhanced by eliminating the tiering and applying the basic 3-factor formula directly to all units of local government within each state.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: When we determine what steps the Congress has taken, we will provide updated information.

    Matter: Congress should amend the Federal Revenue Sharing Act, as amended, to eliminate the tiering procedure, thereby making allocations within states directly to all units of local government based on the three factors of population, relative income, and tax effort.


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