Fiscal Disparities Across States, FY 2002

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Abstract

States and their local governments vary both in their needs to provide basic public services, and in their abilities to raise revenues to pay for those services. This study summarizes the Representative Revenue System (RRS) and the Representative Expenditure System (RES) frameworks and quantifies these disparities across states by comparing each state's revenue capacity, revenue effort, and necessary expenditures to the average capacity, effort, and need in states across the country.

Introduction

States vary both in their need to provide basic public services and in their ability to raise revenues to pay for those services. The representative revenue system (RRS) and representative expenditure system (RES) frameworks measure these disparities across states by comparing each state's revenue capacity, revenue effort, and expenditure need to the average capacity, effort, and need in states across the country. Because different states assign tax authority and expenditure responsibilities to different levels of government the RRS and the RES combine information about revenues raised and expenditure needs across all levels of government in each state.

The RRS and RES use a methodology based on the underlying economic and demographic conditions found in the states, rather than actual revenue and expenditure levels. A state's revenue capacity measures the resources its state and local governments can tap to finance public services. A state's expenditure need gauges the extent to which its state and local governments face conditions that raise or lower the cost of and need for public services. Fiscal capacity assesses each state's ability to raise revenues relative to its expenditure needs.

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