	Introduction

This report provides a brief history and analysis of general revenue sharing (GRS). The United States implemented a GRS program in 1972 that expired on September 30, 1986. The budget gaps for is estimated to be $31.0 billion for the remainder of FY2009 and for FY2010 it is estimated to be $64.7 billion. An examination of the GRS program that existed from 1972 to 1986 could provide some historical perspective if policy makers were to consider a revised GRS program in 2009. The first section provides a brief overview of GRS as authorized by the State and Local Fiscal Assistance Act of 1972 (P.L. 92-512, the 1972 Act) and the three extensions. Amount

Over the almost 15-year life of the GRS program (1972 through 1986), over $83 billion was transferred from the federal government to state and local governments. To achieve a comparable magnitude of assistance today, approximately $313 billion (in 2008 dollars) would need to be distributed over the next 15 years. Thus, the proponents and opponents of GRS modified their political and economic arguments depending on the current political and economic conditions. Because of this turbulence, the rationale behind GRS cannot be traced to a single political or economic objective. This section of the report summarizes three frequently mentioned economic rationales behind GRS: to initiate an intergovermental fiscal reallocation, to address state and local government liquidity crises, and to synchronize federal and state-local fiscal policy. Fiscal Reallocation

Fiscal reallocation has two components. A countercyclical GRS program could help alleviate these relatively short-term liquidity problems for states. Implementation Issues

The above discussion assumed that federal spending would flow seamlessly from the federal government through states to the designated spending program. Fiscal Policy Time Lags

Time lags in implementation are the primary impediment to effective fiscal stimulus. A Brief History and Analysis of Prior GRS Legislation

The 1972 Act
The GRS grants authorized by the State and Local Fiscal Assistance Act of 1972 (the 1972 Act) were essentially unconditional. The grants could not be used for education. In the Senate report accompanying the legislation, Congress identified the following two reasons for the extension: (1) "Rapidly rising services costs coupled with sluggish declining tax bases has meant that State and local governments have had to raise tax rates and/or cut services," and (2) "A chronic problem State and local governments face is that the demand for public services is more elastic than the availability of revenues to finance them." Until the 1980 Act, approximately one-third of the GRS grants had been allocated to the states. The countercyclical aid program was not extended.
This report provides background and analysis of the general revenue sharing program (GRS) as authorized in the State and Local Fiscal Assistance Act of 1972 (P.L. 92-512, the 1972 Act). The GRS program was extended three times before finally expiring on September 30, 1986. Over the almost 15-year life of the GRS program (1972 through 1986), more than $83 billion was transferred from the federal government to state and local governments. From 1972 to 1980, states received approximately one-third of the grants and local governments received two-thirds. State governments were excluded from GRS beginning in the 1981 fiscal year (FY).
In 2003, policymakers suggested using the original GRS program as a model for a new, short-term, GRS program. The FY2004 budget resolution contained a proposal (H.Con.Res. 95, Sec. 605) expressing a sense of the Senate that $30 billion should be set aside over the next 18 months for state fiscal relief. Congress ultimately approved $20 billion in aid to states; $10 billion through Medicaid and $10 billion distributed by population. By comparison, in 1972, the federal government authorized $8.3 billion ($42.1 billion in 2008 dollars) for the first 18 months of the original GRS program. More recently, the recession that began in 2008 has prompted similar proposals.
The rationale behind GRS in 1972 cannot be traced to a single political or economic objective, such as economic stimulus. The turbulent economic and political environment that characterized the 1960s and 1970s led proponents and opponents of GRS to modify their political and economic arguments as that environment changed. Generally, GRS could be implemented to (1) initiate intergovernmental fiscal reallocation; (2) address state and local government liquidity crises; and (3) synchronize federal and state-local fiscal policy. A revised GRS program intended to help close state budget deficits (estimated to be $31.0 billion for the remainder of FY2009 and estimated to be $64.7 billion for FY2010) has been advocated based on the last two objectives.
The budget crisis facing state and local governments in 2009 has generated renewed concern at the state and local level. A GRS program designed as a countercyclical initiative would encounter two primary implementation issues: fiscal policy time lags and variability in the state response to GRS grants. In addition, as with all fiscal policy, the overall size of the additional federal spending is critical to the impact of the fiscal stimulus.
This report provides general background and analysis and does not track current legislation. It will not be updated.