Federal Government Intergovernmental Aid Analysis

Understanding the concept of intergovernmental aid is only the beginning in understanding the more widespread problem in the United States. In the United States, federal intergovernmental aid devoted to public welfare increased from $55 billion in 1977 to $284 billion in 2009 (Government Accountability Office). This means that there was a 417% increase in intergovernmental public welfare aid given to state governments by federal government. Most of the increase in aid can be attributed to the increase in categorical assistance programs and Medicaid. At the local level, according to David E. Wildasin, “in 2006, governments were the recipients of approximately $475 billion in [total] explicit transfers from the state and federal governments”

Typically, at the local level, federal and state aid tends to go to larger municipalities that are often considered to be poorer areas. Those municipalities that are considered to be poor areas must shell out more money to assist residents in need. Thus, according to John Pelissaro states have been very responsive to cities need over time when looking at fiscal need indicators (Pelissaro, 1984). Therefore, poorer communities tend to receive a larger amount of federal and state aid, in contrast to areas that are better off. Thus to further examine how intergovernmental aid works and to see if poorer areas are, in fact, receiving more aid, this paper will analyze how the change in the local unemployment rate effects that change in intergovernmental aid and whether the unemployment rate has an effect on total governmental expenditure at the local

In looking at local budgetary expenditures, the paper is going to establish whether there is a direct relationship between the change in unemployment rate at the local level and any changes in intergovernmental aid flowing to local governments. Does an increase in the unemployment rate force the State of New Jersey to react in a timely manner to offset the possible losses in revenue at the local level, or, does the State of New Jersey leave local municipalities to offset the loss of revenues by themselves when local municipalities experience an increase in the unemployment