ABSTRACT
The finances of state and local governments are closely connected. The states have legal control of local financial practices and provide much of the revenue of local governments. Factors external and internal to states have prompted a greater role for state governments in state and local fiscal affairs. The federal government has initiated many new programs by promising states significant aid if they implement them. By 1991 the aggregate amount of direct federal aid to local governments had declined to levels that prevailed in the late 1950s. This withdrawal of federal aid prompted demands from local governments for state governments to replace the lost federal aid. The state now raises more in the way of taxes and provides more state aid to fund local government activities. Local governments have become more dependent at a time when questions about inequities among local tax bases and inequities of school expenditures have become major issues.
