ABSTRACT
This chapter focuses on two elements that played a critical role in altering the federal system: changes in the system of finance and competition among subnational governments. The decline in federal aid and the impact of the tax revolt hampered the ability of city governments to balance revenues and expenditures. The reduction of federal aid has taken place within an environment of increased competition for that aid among subnational governments. The use of formulas increased the number of local governments that looked to Washington for aid. The federal government became an important source of funds not only for large declining cities but for most other local governments as well. The Reagan group considers economic development assistance to be economically inefficient, whereas its advocates see it as a counterweight to federal government activities, such as patterns of defense spending, that have hurt the Frostbelt and helped the Sunbelt.
