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Two studies note federal, state aid to cities declined over decade.

Two studies released within the past several weeks reveal recent trends in federal and state funding for localities. Taken together, the studies suggest that intergovernmental aid to cities and towns has declined significantly over the past decade, and that the composition and sources of this aid have changed dramatically.

While the decline in intergovernmental aid to cities may come as no surprise to most city officials, this decline alone is not enough to provide an accurate assessment of the fiscal situation in our nation's cities and towns.

According to a fiscal brief issued by the Center for the Study of the States at the State University of New York in Albany, federal aid to localities is "enveloped in confusion" and is "not what it used to be." Consequently, the brief highlighted four major findings:

First, contrary to popular belief, the trend in federal aid to state and local governments reversed in the late 1980s. After a sharp fall in the late 1970s and early 1980s, federal aid increased considerably after 1989 (although most of this increase benefitted states). Between federal fiscal years 1989 and 1993, aid soared from $122 billion to nearly $204 billion, an increase of 45.5 percent after accounting for the effects of inflation.

The report cautioned, however, that while "the Bush years were not like the Reagan years," the funding reversal since 1989 has failed to counterbalance the cuts imposed during the last years of the Carter and initial years of the Reagan Administrations.

Second, the report noted that despite the large increases in the size of federal and local budgets and the economy at large, federal aid in real dollars is roughly the same now as it was in 1972 (excluding grants for programs like welfare and Medicaid).

Third, the report distinguished between federal aid for payments to individuals and general grants for state and local governments and noted data the composition of federal aid has shifted. Grants to individuals now comprise the most significant portion of federal aid, with Medicaid accounting for 40 percent of all federal aid in 1993.

Last, according to the report, federal aid to states has fared much better than federal aid to local governments over the past five years. While federal aid to states has remained relatively constant, funding to localities has been sporadic.

Federal aid to local governments per $100 of personal income soared between 1970 and 1978, reaching a level four times as high as when it began that period. It then fell sharply to roughly one third of its 1978 level. As the chart below demonstrates, federal aid to local governments rose from about 12 percent in 1970 to 28 percent in 1978 and then dropped to 12.4 percent in 1991.

A study recently released by NLC, in conjunction with Dr. Michael Pagano at the Center for Public Management and Regional Affairs at Miami University, produced similar findings. The study, City Fiscal Conditions in 1993, was based on a survey of 688 cities nationwide; it noted that intergovernmental aid to cities has declined by 19.4 percent since 1980 in constant dollars.

Federal aid amounted to $63.60 per capita in 1980, dropping to $29.40 per capita by 1993, a decline of 53.8 percent. Over this same period, state aid increased from $72.40 per capita to $80.20, a 10.8 percent increase. Constant-dollar state aid has not replaced the decline in federal aid during the period, 1980 to 1993.

More recently, per capita state aid to cities has declined in relation to federal aid; but, the shift, which has occurred over the past two years, has not been dramatic. According to the report, constant dollar state aid is expected to decline to $80.20 per capita in 1993 from its previous high of $87.80 in 1985. At the same time, federal aid is expected to grow to $29.40 per capita in 1993 from a 1992 low of $27.30.

NLC's report also found federal and state aid to cities to be correlated with city size. The nation's largest cities (cities with populations greater than 300,000) received more intergovernmental aid per capita than smaller cities.

In 1980, the largest cities received approximately $186.50 per capita from the federal government and $152.10 from state governments. Currently, these figures have reversed; these cities now expect to receive $148.80 per capita from state governments and $94.60 per capita from the federal government.

On the other hand, cities in the next population tier (those with populations between 100,000 and 300,000) experienced decreases in federal aid from $94.30 per capita in 1980 to $36.40 in 1993. During this time, state aid held steady at $87.40 per capita.

Cities under 100,000 population receive less aid per capita from both the federal government and the states compared to larger cities. States, however, have increased aid to these cities since 1980 by more than $10 per capita, while federal aid has been nearly halved.

Both reports also cited unfunded mandates as a major reason for local fiscal instability. The Albany study noted that mandates have surpassed federal aid cuts as a perceived problem for states and localities.

In addition, nearly one third of all cities surveyed by NLC identified unfunded mandates as having one of the three most unfavorable impacts on their budgets. The NLC report added that "shifting the cost of meeting national or state objectives onto the shoulders of cities that operate under balanced budget requirements hurts efforts to stabilize local economies."
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Title Annotation:1983-1993
Author:Eddins, Kevin
Publication:Nation's Cities Weekly
Date:Sep 20, 1993
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