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Critical Issues in State-Local Fiscal Policy, Part 1:
Sorting out State and Local Responsibilities

Executive Summary

Updated 28 January 1999


Sorting Out State and Local Responsibilities

The nation is experiencing a transition as state governments take back some of the responsibilities that the federal government had assumed between the 1930s and the 1970s. Voter pressure for fiscal discipline at all levels of government is driving state and local governments to assess (and possibly rearrange) their varied responsibilities for funding and delivering services. In sorting out, legislatures have a responsibility to determine the roles of the public and private sectors in service delivery and assign financing responsibility. This report provides five principles as a framework to help guide the sorting out process.

What is Sorting Out?

Sorting out is the process of deciding two critical issues in the relationship between state and local government:

Sorting out governmental responsibilities presumes that a more fundamental question-whether government should provide the service at all-has been considered and answered affirmatively. Because local governments derive their powers from the states, it is the responsibility of the state legislature then to sort out the roles and responsibilities of state and local governments.

A major benefit of sorting out government responsibilities is to make governments accountable to taxpayers for the quality, effectiveness and efficiency of services. Alice Rivlin, in her 1992 book Reviving the American Dream, argues that the overlapping responsibilities of federal and state governments make it impossible for citizens to assign responsibility for the success or failure of programs. The same argument applies to state and local governments.

Government or Not?

Any sorting out process must begin with the fundamental question: Should government provide this service? Growing fiscal constraints at all levels of government in the coming years may prompt policymakers to ask this more frequently and, in some cases, respond that the private or nonprofit sectors are the most appropriate providers. The government's contribution to this process may be simply to provide incentives or reduce regulatory obstacles. Whether government has a role in financing services provided by private or nonprofit providers is another question. Government responses will vary, depending on such factors as efficiency levels, cost effectiveness, accountability and political considerations.

Partnerships that combine government and nongovernment efforts are common. And, in many instances, these public-private partnerships have been successful.

Cases in Sorting Out: The V'Burg Initiative, a Public-Private Partnership

A unique combination of transitional housing, support services, and education and training in Vicksburg, Miss., was created through a public-private partnership with the purpose of moving low-income women out of welfare and toward self-sufficiency.

The V'Burg Initiative, a nonprofit development organization, was founded in 1989 by the city. Its Self-Sufficiency Committee, which represents 13 human service agencies, coordinates services provided by a network of 28 county agencies. Several federal programs subsidize child care, transportation, meals and social services, supplemented by the United Way and other private sources. The nine-unit housing development, including a child care and adult training facility, cost $1.1 million. It was constructed debt-free with financing that included $500,000 from the state's Community Development Block Grant program. The state made these funds available under a special competition to select innovative projects that proposed linking affordable housing and comprehensive services as a model for helping Mississippi's low-income population gain economic independence. Other financing included $453,233 from the city, $430,000 from the county, donations by the local utility of heating systems worth $62,400, a $30,282 grant from the regional Public Housing Authority, and contributions totaling $18,000 from banks and local businesses. Professionals donated their services-such as appraisal and environmental impact assessment-to many elements of the development.

State or Local Responsibility?

Once the decision is made that government should provide a service, legislatures have an important responsibility to design a financing and delivery system that is rational, efficient and accountable. This first requires a state to determine which level of government should provide a service. If local government is determined to be the appropriate provider, the next decision must be whether the state should assist with financing.

For some state and local programs, such as education, the state constitution provides explicit guidance about the responsibility for funding and delivering services. In most cases, however, state constitutions are silent on the issue. It is then up to policymakers to determine the appropriate mix of service delivery and financing.

The sorting out process requires an explicit recognition of the disparities in the wealth of local governments. A legislative decision to shift program responsibility to local governments could mean that certain services would no longer be provided because some local governments could not afford them, while other better-off localities become magnets for people in need of these services. To address this concern, some states have adjusted their aid programs or have allowed local option taxes.

The sorting out process often involves weighing the tradeoffs between important but sometimes contradictory principles. For example, local governments may better understand the public's needs because they are closer to the citizens they serve. On the other hand, local viewpoints may not take into account the priorities of a broader state constituency. Ultimately, state traditions, values and fiscal systems will lead policymakers to decide which principles will guide their sorting out decisions.

Setting the Stage for Sorting Out

Policymakers first need to decide whether government should have a role in providing a service. If a government role is appropriate, sorting out principles can provide guidance in deciding which level of government is appropriate to finance and deliver the program or service.

Devising the Framework for Sorting Out

The following five principles constitute a framework for sorting out responsibilities between state and local governments. They encourage states to review the goals of the state-local government system and to evaluate how proposed changes in the roles and responsibilities of state and local governments can further those goals.

The five sorting out principles are these:

  1. Provide the clearest possible separation of responsibility between state and local governments.
  2. Assign program responsibility to the lowest possible level of government unless there is an important reason to do otherwise.
  3. Consider the fiscal effects of state mandates on local governments, and either assume financing responsibility for costly mandates, allow local discretion in implementing them or repeal them.
  4. Assume state responsibility for programs where uniformity will result in statewide benefits.
  5. Provide state financial assistance to local governments that have the lowest capacity to raise their own revenue.

Participating Legislators and Legislative Staff

Senator Charles Horn, Ohio
Representative Willie Logan Jr., Florida
Senator David Nething, North Dakota
Senate President Tom Norton, Colorado
Delegate Howard P. Rawlings, Maryland
Representative Ann Rest, Minnesota
Paul Dlugolecki, Executive Director, Senate Minority Appropriations, Pennsylvania
Ted Ferris, Staff Director, Joint Legislative Budget Committee, Arizona
Jamie Franklin, Staff Administrator, Legislative Research Commission, Kentucky
Harry A. Green, Executive/Research Director, Advisory Commission on Intergovernmental Relations
Robert Keaton, Director, Senate Office of Fiscal and Policy Development, Louisiana
Stephen A. Klein, Legislative Fiscal Officer, Joint Fiscal Office, Vermont
Alan Kooney, Legislative Budget and Finance Officer, New Jersey
Abraham Lackman, Secretary, Senate Finance Committee, New York
Philip Leone, Director, Joint Legislative Audit and Review Commission, Virginia
Leo Memmott, Legislative Fiscal Analyst, Utah
Dennis Prouty, Director, Legislative Fiscal Bureau, Iowa
Stephen Price, Staff Director, House Appropriations Committee, Missouri
Gary Olson, Director, Senate Fiscal Agency, Michigan
Peter Schaafsma, Executive Director, California Debt and Investment Advisory Commission

Representatives of the Foundation Fiscal Partners

American Federation of State, County and Municipal Employees: Marcia Howard, Economic Policy Analyst, Department of Public Policy; Marie Monrad, Associate Director, Department of Public Policy
Committee on State Taxation: Douglas Lindholm, Legislative Director, representing AT&T, Ford Motor Company, American Express, Coca Cola and General Electric
International Council of Shopping Centers: Russell Pratt, Staff Vice President; Richard Warren, Director of State Relations
National Education Association: Joseph A. Falzon, Research Specialist; Janis Hagey, State Policy Affairs Coordinator; Ed Hurley, Research Specialist
National Soft Drink Association: Kevin Perry, State and Local Affairs
NCSL Foundation for State Legislatures: Jerry Sohns
Philip Morris Management Corporation: Derek Crawford, Director, Government Affairs Planning; John Dunham, Fiscal Issues Manager


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