or local-level taxes, the effort (as measured by the revenues raised at the state or local level) required to finance a target (or an adequate) level of services would vary dramatically. (Ladd and Yinger, 1994, refer to this concept of effort as revenue-raising capacity.) The goal of aid is to make it possible for all states or localities to provide the target level of services with a reasonable effort.

At the state level, there are numerous examples of aid programs that have been designed to accomplish this goal. For instance, most state aid to local school districts is distributed via foundation aid programs. Under such programs, the state guarantees that each school district that levies a tax rate at or above some minimum will be able to spend at least a minimum or foundation amount on each student. The local contribution toward this amount is first determined by applying the minimum tax rate to the tax base. The state then provides enough aid to ensure that each student generates funding equal to the foundation level or allowance.

Downes and Pogue (2002) show that foundation aid programs are consistent with the goal of enabling all aided localities to provide a target level of services with a reasonable effort. Such explicit links between the goal of closing the gap between need and effort and the design of aid formulas are not as evident for aid programs at the federal level. Nevertheless, this goal has influenced the motivation for and the design of many federal aid programs. For some programs, like the Substance Abuse and Mental Health Services Administration’s Substance Abuse Prevention and Treatment Block Grant Program,1 the statement of the program’s objective makes general reference to providing each state with the ability to meet local need:

The Substance Abuse Prevention and Treatment (SAPT) Block Grant program goal is to support substance abuse prevention and treatment programs at the State and local levels. While the SAPT Block Grant provides Federal support to addiction prevention and treatment services nationally, it empowers States to design solutions to specific addiction problems that are experienced locally (Substance Abuse and Mental Health Services Administration, 2001).

In other cases, by providing more aid to states or localities with less ability to raise revenue, formulas have the explicit intent of making more

1  

See Appendix B for more information about this and other formula allocation programs mentioned in this chapter.



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