State Control of Local Finance

September 28, 1937

Report Outline
New State Law to Control Local Finance
State Control of Local Taxes and Debt
Administrative Control of Local Finance
Coordination of State Supervision

New State Law to Control Local Finance

Acute Financial Distress of local governments in all parts of the country during the early years of the depression—in many cases the result of poor fiscal management by local officials—has given rise since 1930 to a great increase in state responsibility for local fiscal administration. Scattered efforts to control the fiscal affairs of local units, chiefly through the imposition of constitutional or statutory limits on tax rates or on the incurrence of debt, were made by a number of states as early as 1875. Since the World War, state control has been imposed to an increasing extent by placing supervisory power over the whole range of local financial processes in the hands of state administrative agencies. During the depression, every state in the Union has adopted legislation designed to establish, or to strengthen, state control over some phase of local finance.

At this year's legislative sessions, Nebraska made the installation of accounting systems mandatory on all counties, while all local government units in Pennsylvania were brought under a uniform budget system. In Iowa, a newly-created state board of appeals was given power, upon protest by a certain percentage of taxpayers, to revise the budget of any local government. A “cash basis” law enacted in 1936 became effective in New Jersey this year. The law is designed to put all local units on a pay-as-you-go basis by 1942.

The trend toward greater state responsibility for local fiscal administration has been paralleled during recent years by increasing state control of other functions customarily performed by local governments—education, welfare and public health, highways, and law enforcement. Whereas centralization of these latter services seems to have been largely due to the inability of local units to support them, the primary cause of state supervision and control of local finance has been the desire to bring about greater efficiency and economy.

ISSUE TRACKER for Related Reports
State and Local Taxes
May 04, 1966  Local Income Taxes and Revenue Needs
Feb. 13, 1963  State and Local Taxation
Dec. 10, 1958  Local Income Taxes
Aug. 16, 1941  State-Local Finance in the War Emergency
Sep. 28, 1937  State Control of Local Finance
Jul. 09, 1932  New Sources of State and Local Revenues
Sep. 16, 1930  Rising Cost of State and Local Government
Nov. 24, 1926  Increasing State and Local Taxation
Jul. 20, 1925  Problems of State and Local Taxation
State, Local, and Intergovernmental Relations