Changes in Revenue Sharing Formula Would Eliminate Payment Inequities; Improve Targeting Among Local Governments

The equity and the targeting of the revenue sharing formula used to determine revenue sharing payments to more than 39,000 local governments were considered. Only the intrastate formula for distributing revenue sharing funds to local governments was evaluated. Calculations for allocating funds to state and local governments are based on complex formulas and procedures specified in the Revenue Sharing Act. The formula to determine the allocations to local governments includes the following three factors: population; per capita income, used to measure a government's need; and adjusted taxes, used to measure a government's effort to meet its needs. The intrastate allocation process begins by a tiering process of dividing funds among geographic county areas. Once the county area allocation is established, separate amounts are set aside for Indian tribes and Alaskan native villages, the county government, municipalities, and townships located in the county area. The distributional impact of general revenue sharing allocations was examined in terms of amounts received by different types of local governments. Extensive analyses were performed of the effects of tiering procedures and the application of constraints in the revenue sharing allocation process. Results were developed from computer simulations of the formula under alternative sets of constraints, with and without the current allocation tiering process. The impact of these formula simulations on jurisdictions was examined with different characteristics, such as fiscal effort, income, fiscal need, and service responsibilities.