Finance

in Britain the book of local authority's finance derives from the Rate Support
Grant provider by central government. Until 1979 the Rate Support Grant
consisted of three parts: the domestic element, the resources element, and the
needs element. The domestic element was paid to district councils to enable them
to reduce the level of rates (local taxes) levied on householders. The resources
element was paid to compensate those authorities whose rate able value per head
of population was below a datum line determined annually by the government.
This enable those authorities with lower tax bases to maintain a similar standard
of service to that elsewhere. The largest part of the Rate Support Grant was
distributed through the needs element, and clearly the criteria adopted by central
government for the calculation and distribution of this component had a
significant impact on the effective power of local government. The policy of the
Labour government between 1974 and 1979, in response to the emergence of
urban deprivation as a readily identifiable problem, was to switch part of the
Exchequer aid from rural to urban areas by altering the formula used to distribute
the needs element of the Rate Support Grant. As Table 20.2 shows, in financial
terms this had the effect of reducing the 1979/80 grant to nonmetropolitan
authorities in England and Wales by 6.0 percent (278 million) from its 1974/75
level, 212 million of this being transferred to the London boroughs and 66
million to other metropolitan districts. Clearly, since a 1 per cent change in the
total size, or the urban/rural allocation of the Rate Support Grant far outweighs the
entire budget of the Development Commission and similar rural development
agencies'.

(Moseley 1981, p. 586), such a policy redirection was strongly opposed by

nonmetropolitan authorities (Association of Country Councils 1979). Following
the introduction of a Conservative government in 1979 the different elements of
the Rate Support Grant have been subsumed into a new block grant and a formula
adopted which enables central government to control local expenditure by
withdrawal of all of part of the grant from local authorities who ignore
government spending guidelines. Thus, through the medium of the Rate Support
Grant, the state is able to dictate level of spending with in local unite and to direct
central funding where it will. The scale of funds in involved in this process
ensures that any government decision has a significant redistributive impact in
term of both finance and power.
In the USA there are three basic ways of financing local government:
taxes, user fees and intergovernmental transfers. Historically, the backbone of
local government finance has been the real property tax which, even with the
growth of sales taxes, income taxes and intergovernmental transfer of funds, still
accounted for 37.0 percent of all local revenues in 1971. However, as the tax-
cutting Proposition 13 in California revealed, the real estate tax is reaching its
economic and political limits as a source of local revenue. State and Federal
assistance are now necessary to sustain public programmes in rural areas.
Accordingly, the most significant development of the last two decades has been in
the role of intergovernmental transfers, reflecting the growing importance of
Federal grant-in-aid payments as well as state payments to localities (Rainey and
Rainey 1978).
The framework for local government finance (as well as for its functions)
is established by state constitution and statute law. State governments use three
techniques to assist the localities: (1) they directly operate local programmes; (2)
they provide grants for local government's operating programmes; and (3) they
permit the localities a variety of tax and revenue raising methods. State financial
aid to local government in 1974 made up 35.0 percent of county, 21.0 percent of
municipal, 11.0 percent of township and 45.0 percent of school district general
revenue. Federal involvement in local government finance has also increased to
the extent that now 'scores of federal agencies provide money, services, and
technical aid for nonmetropolitan development' (Fuguitt et al. 1979, p. 69). The
multifaceted Federal assistance does not come without cost to recipient states and
localities. The costs include conformance to regulations, requirements, mandated
programmes, and goals; the necessity of raising 'match' money; and sometimes
supporting an unwanted project after Federal funds have run out. In order to offset
some of the Federal dominance problems of grants-in-aid a revenue-sharing
programmes was initiated by the State and Local Assistance Act 1972, which was
reviewed and expanded in 1976. Under this, funds are distributed annually to state
and local governments who have some discretion over their use. The amounts
received by individual localities, however, are often small and can really be seen
as 'topping-up' funds obtained from traditional grant-aid or other revenue-raising
programmes.
Clearly under the Federal system of government individual American
states have greater autonomy than the English and Welsh counties and Scottish
regions, but in both countries central government continues to exercise
considerable financial power over activity at the lower levels.