Targeting Federal Assistance to Local Governments in Rural and Low-Income Areas, 1972-1983

Two questions have predominated policy discussions about theallocation of federal aid to rural local governments duringthe last two decades: whether rural areas were getting their"fair share" and whether the aid was appropriately targetedto deserving communities. An analysis of data for 1972–1983shows that although the position of rural governments apparentlyimproved during the 1970s, the gains were principally due tosharply increased loans to rural areas, while urban areas benefitedfrom increases in grants-in-aid. Conversely, the aid reductionsof the early 1980s, by cutting into loans, which are less valuablethan grants, appear to have hurt rural areas less than urbanareas. A modest amount of income-targeting in federal developmentfunds was evident in the early 1970s, but it deteriorated duringthe following decade. By 1983 counties with higher incomes andmore satisfactory levels of public services received higherlevels of aid than places that might have been considered moreneedy. While the reasons for the generally diminished targetingare not clear, several possibilities, including the increasingimportance of loans as a federal aid mechanism, are considered.