Paying for Planning

This report explores how state and federal aid in economic downturns can protect local governments’ vulnerability to procyclical pressures. Historically, federal intergovernmental aid has moved from categorical to general, and states are much more limited in their aid spending as they lack the discretionary countercyclical spending ability of the federal level. Looking at Great Lakes states, current programs can be adjusted to increase their efficacy, such as indexing lump-sum programs from nominal dollar amounts to payments adjusted to inflation, or basing aid payments on multiyear revenue performances rather than single year to limit volatility.