THE STATE AID DECISION - CHANGES IN STATE AID TO LOCAL GOVERNMENTS, 1982-87

This paper provides evidence on several policy issues about state aid to local governments. With state-specific changes in state aid between 1982 and 1987 as the dependent variable, the estimated equations show that state aid to local governments grew less than proportionately with exogenously determined changes in state own-source revenue and that changes in the amount of aid were influenced by the state's initial financial condition. In addition, state governments apparently did not view federal aid to state governments as general funds from which they could provide additional aid to local governments. Most surprising is the finding that, controlling for other determinants of aid, state governments apparently offset substantial amounts of the 1982-87 changes in direct federal aid to local governments.