Statistical Issues in Allocating Funds by Formula (2003) / Chapter Skim
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2. Why Provide Aid and Use Aid Formula?
2. Why Provide Aid and Use Aid Formula?
Pages 18-25
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From page 18... ...
In practice, aid formulas often combine elements associated with more than one of the objectives described in this chapter, because the objectives are not mutually exclusive and because the designers of most aid programs hope to accomplish more than one of them. OBlECI IVES OF AID Closing the Gap Between Need and Effort Many aid programs arise in response to the recognition that, if all public services provided by states or localities were financed with state-level 18
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From page 19... ...
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~.
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From page 20... ...
In the absence of aicl, fiscal disparities imply that government activities, such as the provision ancl financing of eclucation, are not locationally neutral the taxes that individuals bear to receive a given level of public services depend on where they reside ancl engage in economic activities. If moving is costly, fiscal disparities mean that some individuals are worse off simply because they reside in localities with higher costs or fewer taxable resources.
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From page 21... ...
Making aid contingent on measurable improvement in the quality of services provided, as is implicitly done in the No Child Left Behind Act of 2001, is intended to force recipient governments to eliminate inefficiencies and direct resources toward those services that are most needed by the target populations. Aid programs can alter behavior in less subtle ways.
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From page 22... ...
Frequently, a mismatch in local and national interests exists because the benefits of the public service in question accrue not just to the residents of the recipient jurisdiction but also to some individuals who have no voting interest in the locality's receiving aid. For example, local governments might choose to spend too little on education because the direct beneficiaries of that spending are not current voters and the community's elected leaders perceive that the lower tax rates associated with the lower spending levels will help attract commercial and industrial investment.
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From page 23... ...
Crafting a compromise between these competing interests may be easier if aid is directed to communities rather than to individuals, since calculating the resources directed to legislators' key constituencies can be done more easily under intergovernmental aid programs and since the economic status of individuals tends to be correlated with the economic status of the communities in which they live. Those who hope to use aid to redistribute economic well-being know that poor people tend to live in poor communities.
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From page 24... ...
Typically, policy makers would set the value of to at what they feel is the minimum fair tax rate. Recipient jurisdictions typically choose local tax rates that differ from to; providing aicl according to this formula closes the gap between need ancl effort but does not prevent residents of any single recipient jurisdiction from choosing to provide more or less of the public service in question.
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From page 25... ...
, with aid amounts varying inversely with ability to pay. Facilitating Political Compromises As was noted in Chapter 1, aid exists in a domain somewhere between the idealized world in which aid programs are designed to fulfill explicit objectives and the purely political world in which aid programs simply divvy up pots of money.
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