This section is from the "The Subvention In The State Finances Of Pennsylvania" book, by Frederic B. Garver.
A third reason for the existence of the grant in aid is that it permits an equalization of the burden of supporting a given service. The subvention for common schools illustrates this point. It is commonly conceded that every child within the state has a right to competent instruction in elementary subjects. More important still, the community as a whole has an interest in seeing that he receives such instruction. But many localities do not have within their jurisdiction sufficient taxable property to permit the maintenance of good schools without the imposition of oppressive taxes. Now by means of a grant from the state treasury funds collected from all the communities within the state according to ability to pay, are then distributed according to need. The richer counties are thus compelled to aid their poorer neighbors. The justification of this redistribution of the burden is to be found in the state-wide interest in education. The widespread adoption of state, subventions for common schools in the United States is an acknowledgment of the obligation of the state to aid in providing the children of poorer districts with an opportunity for a minimum of education.
The subsidizing of local governmental authorities is not, in practice, the only type of subvention. In New York City, and in California, as in several other states, large amounts are paid from the public treasury to private, or quasi-public corporations, or to individuals that perform a service which is more or less public in its nature. A private hospital that takes charity patients performs such a service; so also does a private school that admits promising students of limited means tuition-free, or on easier terms than are required of the children of the well-to-do. And the application of the principle is not limited to schools and colleges that remit tuition, but usually applies as well to all educational institutions that are not operated as money-making ventures. Hence, colleges commonly receive tax exemption for all or a part of their equipment.
To summarize: The subvention has been used in England and in the United States to equalize revenue resources between state (central) and local governments; to equalize the burden of supporting a given service between different localities; and to gain for the central authorities power of supervision over local administration. Finally in the United States it has been used to aid semi-public institutions of an eleemosynary character.
But, although the subvention has been thus employed in England, opinion there is more or less divided as to its desirability. *13 The reforms of 1889 greatly limited the number of grants. In the United States almost no systematic examination of the working of the state subventions has been published. *14 It is with a view to making such an examination that the history of the Pennsylvania system of subventions is undertaken. The reasons for selecting the Pennsylvania system rather than that of some other state are three. In the first place the aggregate amount of the subventions is large. In 1913 the grants amounted to upwards of $12,000,000, or about 40 per cent of the total payments from the state treasury. In the second place, Pennsylvania has developed exclusive state taxes upon corporate wealth to an extent not equaled in any other state that also has an important system of subventions, thus giving rise to large state revenues—often surpluses—that make subventions possible. Finally, a great deal of criticism of the state subventions to privately owned charitable institutions has appeared in the press and in papers read at the meetings of the National Conferences of Charities and Corrections.
13 For criticism, see Webb, Chs. III and IV.
14 See, however, Wisconsin Tax Commission, Special Report (1911), Ch. V.
The plan of this essay is first to set forth the two fundamental conditions that govern the development of a subvention system: (1) The distribution of powers and duties between the state and its subdivisions, and (2) the distribution of revenue resources between the state and the local governments. These two points will be treated briefly in Chapter II. The remaining and larger part of the essay will deal with changes in these two fundamental conditions, and with the historical development and the administration of the grants as they appear.
The financial history of the state may be conveniently divided into five periods. The first begins with 1776 and ends with assumption of the state's debt by the federal government. The second dividing line may be drawn when the internal improvements were begun in 1826, and the third period is identical with the growth of the state system of canals and roads. The fourth period begins definitely with the financial crisis of 1840-1842, and concludes with the adoption of the present constitution in 1873. The period 1874 to 1916, while easily divisible into several shorter periods, may be treated as a unit, since there have been no radical changes in the financial policies of the state. These periods will receive consideration in separate chapters.