Increases in urbanization and mobility, as well as local government fiscal crises have altered the financing of local government expenditures. Intergovernmental transfer of funds has evolved as a major source of revenue for local government units. Intergovernmental transfers to subordinate governments are enacted by various fsical instruments: (1) direct transfer of funds through loans, categorical grants, and unrestricted grants; (2) sharing of the tax base through tax supplements, tax deducations, and tax credits; and (3) intergovernmental coordination of activities. Federal grants to state and local governments have rapidly increased: federal aid as a percentage of state and local sources of general revenue was 8 percent in 1942, 11 percent in 1948, 15 percent in 1965, and 20 percent in 1967. During this same period, the amount of annual state payments to local governments increased from 3.2 billion dollars to 19.1 billion dollars (although throughout the period the payments were a consistent fraction of the national total of states' expenditures). Local government finances for 1972–73 substantiate the importance of intergovernmental funding directed to the local public sector. The total intergovernmental revenue received by all local governments in the United States was 28.6 billion in 1972–73 with 23.3 billion emanating from state governments and 5.3 billion from the federal government. In 1972 Texas state government expenditure in transfers totaled 1.2 billion dollars.
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