Federal policy changes are promoting increased state-local revenue self-sufficiency. The local role as a service provider could be maintained through either increased own-source revenues or increased slate aid. Several state-local trends and features suggest that relatively more of the adjustment might come through state aids. General support aids would best preserve local discretion, but some argue such aids are too stimulative and cause a bloated public sector. Analyzing 174 Minnesota cities, this article explores possible implications of these federalism changes. Both local tax features—base size and ability to export local taxes—and intergovernmental aids are significant determinants of local taxes per capita. Federal aids (aggregate) and one of two state general support aids stimulate local taxes, but to differing degrees. Consistent with theoretical predictions, matching state aid is most stimulative, while modified lump-sum state aid exerts no influence on local taxes, providing possible discrimination between two views concerning the stimulative effect of a tax effort factor in a lump-sum aid distribution formula.
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