What is the significance of revenue sharing

The Clean Air Act is an example of an unfunded mandate. The Environmental Protection Agency sets federal standards regarding air and water quality, but it is up to each state to implement plans to achieve these standards.

Credit: EPA. Some mandates include partial preemption regulations, whereby the federal government sets national regulatory standards but delegates the enforcement to state and local governments. For example, the Clean Air Act sets national air quality regulations but instructs states to design implementation plans to achieve such standards.

The widespread use of federal mandates in the s and s provoked a backlash among state and local authorities, which culminated in the Unfunded Mandates Reform Act UMRA in A new piece of legislation aims to take this approach further.

The Unfunded Mandates and Information Transparency Act, HR 50, passed the House early in before being referred to the Senate, where it waits committee consideration. Some leading federalism scholars have used the term coercive federalism to describe or label this aspect of contemporary U.

Skip to main content. Search for:. Federalism: How is revenue shared? Learning Objectives Explain how federal intergovernmental grants have evolved over time. Identify the types of federal intergovernmental grants.

Describe the characteristics of federal unfunded mandates. The Clery Act The Clery Act of , formally the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, requires public and private colleges and universities that participate in federal student aid programs to disclose information about campus crime. Specifically, to remain eligible for federal financial aid funds and avoid penalties, colleges and universities must comply with the following provisions: Publish an annual security report and make it available to current and prospective students and employees; Keep a public crime log that documents each crime on campus and is accessible to the public; Disclose information about incidents of criminal homicide, sex offenses, robbery, aggravated assault, burglary, motor vehicle theft, arson, and hate crimes that occurred on or near campus; Issue warnings about Clery Act crimes that pose a threat to students and employees; Develop a campus community emergency response and notification strategy that is subject to annual testing; Gather and report fire data to the federal government and publish an annual fire safety report; Devise procedures to address reports of missing students living in on-campus housing.

Questions to Consider What does it mean to refer to the carrot of grants and the stick of mandates? Show Answer grant money may be offered to state governments for much needed services to entice the states to comply with national mandates.

Show Answer personal answer. Show Answer personal opinion. Pollock v. Fiscal Administration , 9th ed. Boston: Wadsworth Publishing. Also, photo of Jeanne Ann Clery. Credit: Brenda and Pete Kohr. Licenses and Attributions. CC licensed content, Shared previously. The need for public services has increased manyfold and their costs are soaring.

At the same time, State and local governments are having considerable difficulty in raising the revenue necessary to meet these costs. The Nixon Administration seemed to have a similar perspective. When President Nixon signed the legislation, the President remarked that the GRS program would "place responsibility for local functions under local control and provide local governments with the authority and resources they need to serve their communities effectively.

However, the shift in the demand for and provision of government services was not the only justification for GRS.

Observers at the time cited these additional reasons for implementing a revenue sharing program: Counteracting cyclical economic problems, such as state and local budget deficits induced by a slowing economy, was not explicitly mentioned as justification for GRS in the Act.

However, when the debate began in on extending GRS beyond , the countercyclical potential of revenue sharing apparently became important to policymakers. The counter cyclical arguments were likely initiated by the relatively severe recession that lasted from November through March The extension also eliminated the priority expenditure categories for local governments and the prohibition on states from using the grants for federal matching grants.

Policymakers recognized the fungibility of local revenues which initiated the elimination of the spending restrictions. Although the fiscal stimulus features were mentioned during the debate surrounding extension, the ultimate purpose of revenue sharing was characterized as a long-term restructuring of the intergovernmental transfers.

The desire to use revenue sharing as a countercyclical fiscal policy tool was not directly addressed in the extension. However, the reference to revenue sharing's ability to "stabilize" the economy may have arisen due in part to the countercyclical merits of GRS as suggested during the debate leading up to the extension.

Nationally, the transfer averaged 0. The Committee believes that State governments are better able to adjust to the discontinuance of revenue sharing allocations than local governments. Until the Act, approximately one-third of the GRS grants had been allocated to the states. In addition to continuing GRS for local governments, the Act also authorized the creation of a "countercyclical assistance program" to be triggered by national economic downturns.

The purpose of the program was to provide assistance to state and local governments during recessions. Once a recession has been confirmed by these declines, funds would be provided for each recession quarter in relation to the severity of the recession. The state portion would be adjusted by the state's tax effort. The greater the effort, the greater the grant. Apparently, the trigger threshold was never crossed.

No grants were provided under the countercyclical fiscal assistance program. Table A-1 below reports the quarterly change in the real wage and real GNP for the second quarter of through the third quarter of The time periods reported in Table A-1 are the three federal fiscal years for which funding was authorized plus the two quarters before the first fiscal year of authorization. Note that for the quarter time frame reported below, there were never two consecutive quarters where both the real GNP and real wage declined from the previous quarter.

Source: CRS calculations based on quarterly data from the U. Department of Labor, Bureau of Labor Statistics. The Act is significant because the act discontinued revenue sharing for the states and formally introduced the concept of providing countercyclical fiscal assistance through federal grants to state and local governments as part of GRS legislation.

Ultimately, the countercyclical assistance program was never funded and thus no countercyclical fiscal assistance was provided. The grants to local governments probably had little effect on the national economy given they represented 0. GDP over the three-year time frame.

As with the Act, only local governments received grants. The extension was intended to stabilize the fiscal condition of local governments. The conference report accompanying the legislation stated that the. To assist local governments in meeting the needs of their communities in a time of fiscal stringency, the Committee amendment extends the general revenue sharing program for three years. This amount was equal to the amount received by local governments from through The countercyclical aid program was not extended.

The GRS program ended September 30, The business cycle has peaks and troughs. Fiscal policy and monetary policy are used together to attenuate the size of those peaks and troughs to stabilize the economy. These actions are counter-cyclical.

In contrast, pro-cyclical fiscal and monetary actions magnify the peaks and troughs, thus destabilizing the economy. For a more detailed description of the Act, see U. Unlike the federal government, most state and local government fiscal years begin July 1 and end on June Thirty states use an annual budget cycle, while the other 20 use a biennial cycle. An alternative, yet similar, five-variable formula the "House" formula was also used for determining the initial state share. The five variable formula included the three mentioned variables plus the state's urbanized area and income tax collections.

The state chose the formula that produced the largest grant. Tax effort is a measure of taxes as a fraction of ability to pay. Two states with the same ability to pay and the same amount of taxes collected would receive equal tax effort scores. If a state raised more from the same ability to pay, it would receive a higher tax effort score.

More detail on this critique of the old allocation scheme can be found in the following: U. Most research has found that state and local tax regimes are generally more regressive because they rely much more heavily on sales and property taxes than on income taxes. The sales tax is viewed as a very regressive tax whereas the property tax has been cast as mildly regressive. However, some research has found that with a different set of assumptions, the property tax could be mildly progressive.

Bent E. For more on the relative size of U. Congress did enact two relatively small countercyclical assistance programs. The funds would be released to state and local governments provided certain national economic thresholds were crossed. No federal funds were spent under either authorization. The GDP data are from U. Edward M. Note that the Act GRS allocation scheme included per capita income and "tax effort. Jurisdictions with lower relative per capita income, one potential measure of need, also received a larger share.

Julie-Anne Cronin, "U. Treasury Distributional Analysis Methodology," U. Generally, debt cannot be issued for the operating budget. Congress, Senate Conference Report, report to accompany H. Washington: GPO, This quote is cited in the following: Graham W. Department of the Treasury. Richard P. Nathan, Allen D. Manvel, and Susannah E.

Congress, Senate Finance Committee, report to accompany H. Washington: GPO, , p. Around the time the extension was passed, Congress did enact two relatively small countercyclical assistance programs.

The legislation did provide for GRS grants for states if the state reduced other categorical federal grants-in-aid by an amount equal to the GRS grant. Essentially, states had the option of changing categorical aid into general assistance. ERISA establishes standards and implements rules for fiduciaries—or investment companies—to follow in an effort to prevent misusing plan assets. Standards can include the level of participation needed by employees and the funding of retirement plans.

ERISA allows revenue sharing for retirement plan sponsors so that a portion of earned income from mutual funds would be held in a spending account. The funds are used to pay for the costs of managing and running the k plans. The amount of money to be allocated and deposited into the revenue-sharing accounts are stipulated in the revenue-sharing agreement. The fiduciary must notify investors of how the revenue is spent, which helps to provide transparency.

When different companies jointly produce or advertise a product, a profit-sharing system might be used to ensure that each entity is compensated for their efforts. Several major professional sports leagues use revenue sharing with ticket proceeds and merchandising. For example, the separate organizations that run each team in the National Football League NFL jointly pool together large portions of their revenues and distribute them among all members.

Various kickers and stipulations can be added to revenue sharing agreements. If the NFL season, for example, got extended from 16 to 17 games in the coming years, the players would receive additional revenue or a kicker if advertising revenue from T. In other words, revenue sharing agreements can include percentage increases or decreases in the future depending on performance or specific pre-set metrics.

Revenue sharing can also take place within a single organization. Operating profits and losses might be distributed to stakeholders and general or limited partners. As with revenue sharing models that involve more than one business, the inner workings of these plans normally require contractual agreements between all involved parties. The growth of online businesses and advertising models has led to cost-per-sale revenue sharing, in which any sales generated through an advertisement being fulfilled are shared by the company offering the service and the digital property where the ad appeared.

There are also web content creators who are compensated based on the level of traffic generated from their writing or design, a process that is sometimes referred to as revenue sharing.

Participants in revenue sharing models need to be clear about how revenue is collected, measured, and distributed. The events that trigger revenue sharing, such as a ticket sale or online advertisement interaction and the methods of calculation are not always visible to everyone involved, so contracts often outline these methods in detail. The parties responsible for these processes are sometimes subjected to audits for accuracy assurance. Some types of revenue sharing are strictly regulated by government agencies.

The advisory council for the Employee Retirement Income Security Act formed the Working Group on Fiduciary Responsibilities and Revenue Sharing Practices in to address perceived issues with the practice of revenue sharing for k plans.

The Working Group determined that revenue sharing is an acceptable practice, and new rules related to transparency were implemented under the authority of the Department of Labor.

The Working Group also determined that it should take the lead to formally define revenue sharing with regard to defined contribution plans. Investing Essentials.