Local Governments:

Targeting General Fiscal Assistance Reduces Fiscal Disparities

HRD-86-113: Published: Jul 24, 1986. Publicly Released: Jul 24, 1986.

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In response to a congressional request, GAO provided information on: (1) the magnitude of existing disparities in the revenue-raising ability of local governments serving residents of high- and low-income communities; (2) the extent to which the General Revenue Sharing program has served to offset the revenue-raising disadvantage of local governments serving low-income communities; and (3) how more targeted formulas could lower the cost of reducing revenue-raising disparities between high- and low-income communities.

The General Revenue Sharing program allocates funds to local governments within each state based on population, per capita income, and tax effort. The program moderately targets funds to low-income communities, reducing revenue disparities somewhat; however, since all local governments, including the highest income communities, receive revenue sharing funds, the program can reduce disparities to a limited extent only. GAO found that: (1) nationwide, general purpose local governments collected $264 in local taxes per person in fiscal year 1983; (2) the wealthiest counties raised nearly $338 per person compared to $150 in the poorest counties; (3) these disparities exist within both urban and rural areas; (4) poorer communities must either accept lower service levels or tax themselves more heavily than the more affluent communities to provide the same level of services; (5) the General Revenue Sharing program produced less than a 15-percent reduction in revenue disparities between high- and low-income communities; and (6) targeting funds only to communities with incomes below 125 percent of their state's average would double the efficiency of revenue sharing.

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