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Federal, State, and Local Governments
Government Finance and Employment Classification Manual
Chapter 6 - Overview of Government Finance Statistics
 
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Contents and Abstract:

6.1 Primary Basis of Government Finance Statistics
6.11 Four Sectors of Government from a Finance Viewpoint

6.2 Accounting Basis
6.21 Accounting Funds (or Entities)
6.22 Cash vs Accrual Basis of Accounting
6.23 Generally Accepted Accounting Procedures (GAAP)

6.3 Major Finance Concepts
6.31 Statistical Nature of Data
6.32 Current Dollars
6.33 Noncash Transactions

6.4 Intergovernmental Transactions
6.41 Intergovernmental Fiscal Relations (Type 1)
6.42 Fiscal Agents for Other Governments (Type 2)
6.43 Purchases from Other Governments (Type 3)
6.44 Netting Out Duplicative Intergovernmental Transactions
6.45 Payments to Other Government Insurance Trust Systems

6.5 Agency, Private Trust, Investment, and Other Transactions
6.51 Agency Transactions
6.52 Private Trust Transactions
6.53 Investment Transactions
6.54 Adjustment and Correction Transactions

6.6 Internal Transfers
6.61 Interfund Transactions
6.62 Intragovernmental Service Funds (Revolving Funds)
6.63 Interdepartmental Charges

6.7 Miscellaneous Topics
6.71 Suspense Transactions
6.72 Capital and Operating Leases
6.73 Anomalies of Government Finance Statistics
6.74 Exhibit Statistics

Chart:

6-A Examples of Accounting Funds and Their Treatment in Census Bureau Statistics on Government Finances

The Census Bureau collects four types of finance data about state and local governments: revenues, expenditures, indebtedness, and cash and securities . Each type is described in detail in the next four chapters. This chapter provides a general overview of government finances, the accounting practices of governments, and how the Bureau's finance statistics relate to the accounting systems from which they originate.

6.1 Primary Basis of Government Finance Statistics

The primary basis of the finance statistics reported by the Census Bureau relates to all external transactions of a government exclusive of agency, private trust, and investment transactions. The income concept of "revenue," the outgo concept of "expenditure," and the concept of government indebtedness pertain to nearly all accounting funds and accounts and to all boards, commissions, and other agencies of a government, as established using the criteria discussed in Chapter 3. Moreover, these figures are net of any duplicating amounts resulting from transactions between funds or agencies of the same government.

6.11 Four Sectors of Government from a Finance Viewpoint

As described in Section 3.2, the activities of governments are divided into four sectors for Census Bureau purposes. This section provides additional information about these sectors in terms of how they apply to finance statistics.

General Government Sector: General government is comprised of all external transactions except those defined as being in the sectors for Liquor Stores, Utilities, and Insurance Trust. Within the totals of government revenue and expenditure, internal transfers (e.g., interfund transactions) are "netted out." Therefore, "general revenue" and "general expenditure" represent only revenue from external sources and expenditures to individuals or agencies outside the government, and do not directly reflect any "transfer" or "contributions" to or from the utilities, liquor stores, or insurance trust sectors. See Section 6.6 for more information on internal transactions.

Utilities Sector: In the primary classification of government revenue and expenditure, the term "utility" is used to identify certain types of revenue, expenditure, and debt categories. Utility revenue relates only to the revenue from sales of goods or services and by-products to consumers outside the government. Revenue arising from outside other aspects of utility operations is classified as general revenue (e.g., interest earnings). Utility expenditure applies to all expenditures for financing utility facilities, for interest on utility debt, and for operation, maintenance, and other costs involved in producing and selling utility commodities and services to the public (other than noncash transactions like depreciation of assets). Utility revenue and expenditure are reported on a "gross" basis--i.e., without offsetting revenue with its related expenditure or expenditure with its related revenue.

Liquor Stores Sector: Liquor stores revenue relates only to amounts received from sale of goods and associated services or products. Liquor store expenditure relates only to amounts for purchase of goods for resale and for provision, operation, and maintenance of the stores. Any associated government activity, such as licensing and enforcement of liquor laws or collection of liquor taxes, are classified under the general government sector.

Insurance Trust Sector: Insurance trust revenue comprises only (1) retirement and social insurance contributions, including unemployment compensation "taxes" received from employees and other government or private employers, and (2) net earnings on investments set aside to provide income for insurance trusts (see Note 1). Transfers or contributions from other funds of the same government are not classified as insurance trust revenue but rather are reported under special exhibit categories (see Chapter 11). Insurance trust expenditure comprises only benefit payments and withdrawals of contributions made from retirement and social insurance trust funds. Costs for administering insurance trust systems are classified under the general government sector.

6.2 Accounting Basis

The major source of these finance statistics is the governments' own accounting systems, either directly or through intermediate reporting systems like central state collections.

6.21 Accounting Funds (or Entities)

Governments administer their finances through accounting devices called "funds" (not to be confused with the use of the term "funds" for monies). Funds are established to support specific activities or to attain certain objectives, the most important of which is accountability of public monies. The focus of the government's own reporting system, therefore, is on the transactions and condition of these funds.

In contrast, the Census Bureau public finance statistics are organized to show a government's finances in their entirety, with emphasis on the general government sector and without distinguishing the various accounting funds. In other words, the fund accounting nature of government reports disappears in Census Bureau statistics.

6.22 Cash vs Accrual Basis of Accounting

State and local government accounting reports and records may provide data on a cash, accrual, or modified accrual basis. For a particular government, the basis of reporting may differ among funds. Census Bureau statistics generally adopt whatever basis the government itself uses so long as that basis (1) conforms to generally accepted accounting procedures and (2) is applied consistently from year-to-year. Because of the growing standardization of accounting methods by governments (see below), this means that most finance statistics pertaining to governmental fund types are based on the modified accrual basis; proprietary (enterprise) fund types are based on the full accrual basis; and fiduciary fund types are recognized on the basis consistent with the fund's accounting measurement objective. It should be noted that some governments may still use cash basis accounting because of constitutional provisions or other state law (see Note 2).

6.23 Generally Accepted Accounting Procedures (GAAP)

A major change in government accounting over the last decade or two has affected greatly the Census Bureau's public finance statistics. This is the adoption of generally accepted accounting procedures (GAAP) under the aegis of the Government Accounting Standards Board (GASB). Previously, the accounting rules for governments were broad enough that they could develop their own unique form of accounting for their finances. Each financial report, for instance, looked different and reported varying degrees of detail.

Now, more governments have adopted the GAAP for their reporting systems which has had a profound effect on the Bureau's data collection efforts. On the one hand, finance data are being recorded by governments in a more consistent fashion. Yet, the products of this system result in a lower level of detail than in the past, forcing the Bureau to rely less on published financial reports and more on internal accounting records of governments (such as computer reports). This has both complicated the work involved and forced the elimination of certain categories of data, especially in the debt and cash and securities area.

6.3 Major Finance Concepts

The collection and use of Census Bureau finance statistics requires an understanding of certain major concepts. Some of these may have different meaning when used in other contexts.

6.31 Statistical Nature of Data

Although the original source of data for these finance statistics are accounting records of governments, the data derived from them are purely statistical in nature and cannot be used as financial statements or to measure a government's fiscal condition. For instance, the difference between a government's total revenue and expenditure cannot be construed to be a "surplus" or "deficit."

6.32 Current Dollars

Finance statistics published by the Bureau are in terms of current dollar amounts--i.e., they have not be adjusted for price and wage changes that may have occurred.

6.33 Noncash Transactions

These finance statistics exclude noncash transactions, such as technical aid, depreciation of fixed assets, payments-in-kind, loan guarantees, and the like.

6.4 Intergovernmental Transactions

A major category of both revenue and expenditure involves intergovernmental transactions. Governments have important fiscal relations among themselves, generally of three types. First, they transfer monies to other governments to enable the receiving government to perform specific public functions or to provide for its general financial support (Type 1). Second, they act as agents for other governments in financial matters (Type 2). And, third, they purchase commodities, property, and services from other governments much as they do from private suppliers (Type 3). Only the first type of transactions is classified by the Census Bureau as intergovernmental revenue and expenditure. How each of these three types of intergovernmental transactions is handled is described below.

6.41 Intergovernmental Fiscal Relations (Type 1)

The Census Bureau definition of intergovernmental transactions is limited to monies paid to or received from other governments for performing specific governmental functions or for general financial support, whether the activity is undertaken on behalf of the paying government or whether such funds are regarded as assistance for the support of activities of the receiving government. They are classified in the general government sector no matter their purpose (including utilities). Examples of Type 1 intergovernmental transactions include the reimbursement of one government by another for tuition costs, hospital care, boarding prisoners, construction of public improvements, etc.; grants in aid; payments-in-lieu-of-taxes, and the like.

Another form of intergovernmental transaction involves the sharing of tax proceeds with other governments, typically by the state government. A portion of the sales taxes, for instance, collected by the state often may be redistributed to the local governments where they were collected. Whenever a government distributes some share of a tax it imposes and collects, its payments are reported as intergovernmental expenditure and the receiving governments' receipts are reported as intergovernmental revenue. As described in Section 6.42, the retention of taxes collected by a government acting as an agent for another is not reported as an intergovernmental transfer.

Generally, loans and advances to other governments are not treated as intergovernmental transactions except for one unique type: "contingent" loans or advances. Similar to grants-in-aid, contingent loans are made by a government to another without any fixed provisions about its repayment. Designed to assist governments in financing public projects, they are used for such purposes as public works, planning advances, housing development, etc. In all these cases, repayment of money advanced depends on certain contingencies or conditions at a later date. Thus, to ensure that these transactions are reported somewhere in the Bureau's classification system, they are reported as intergovernmental revenue and expenditure rather than as a debt transaction (see Note 3).

Finally, the Census Bureau definition of intergovernmental transactions excludes the sale of marketable securities to other governments (interest bearing or noninterest bearing if the latter have fixed repayment conditions). Instead, they are treated as investment or debt transactions--i.e., as neither revenue nor expenditure.

6.42 Fiscal Agents for Other Governments (Type 2)

Type 2 intergovernmental transactions rarely are classified as intergovernmental revenue or expenditure for Census Bureau purposes.

Governments sometimes act as fiscal agents for other governments. Such relations are excluded from the Bureau's definition of intergovernmental transactions. One common example is the collection and retention of withholdings from employee pay for taxes owed to other governments (such as Federal social security "taxes"). These are treated as an agency transaction and are excluded entirely from the Bureau's statistics (see Section 6.51 below).

Governments also act as fiscal agents to collect taxes that are imposed or authorized by another government. These are reported as taxes by the authorizing government; for the collecting agent they are excluded except for the following: If the collecting government is allowed to retain part of the tax proceeds (e.g., as reimbursement), then that amount is reported as tax revenue by the collecting government. In neither case is the money treated as an intergovernmental transaction.

Thus, if a state government imposes, authorizes, or requires local governments to collect a specific tax and permits the local government to retain all or part of its collections, then this local share is classified as tax revenue of the local government, not as intergovernmental revenue.

This same treatment applies where a state government retains part of a locally-imposed tax or where a local government retains a portion of tax proceeds collected for another local government.

6.43 Purchases from Other Governments (Type 3)

Type 3 intergovernmental services are not classified as intergovernmental revenue or expenditure unless they involve government services (other than utilities).

Governments may purchase property, commodities, and utility services from other governments much as they do from private vendors. Similarly, governments may levy taxes on facilities of other governments in the same manner as on privately-owned facilities. Because a government's records ordinarily do not distinguish between private and governmental purchasers or taxpayers, these types of transactions are not reported as intergovernmental revenue and expenditure in Census Bureau statistics. Instead, they are treated in the same manner as those involving the private sector--e.g., as tax or charge revenue by the receiving government and as direct expenditure by the paying one.

On the other hand, purchases of governmental services (e.g., police and fire protection) from other governments usually are identified as such in a government's records. Thus, reimbursement of one government by another for such services (other than utilities) is reported as an intergovernmental transaction, to the extent such items are identifiable in the governmental records used by the Bureau.

6.44 Netting Out Duplicative Intergovernmental Transactions

Intergovernmental transactions receive special treatment whenever data for individual governments are grouped, or aggregated, for publication purposes. Transactions among governments within the same group are "netted out." For instance, data for all local governments within a state are net of revenue and expenditure between them (i.e., only amounts to and from the Federal and state governments are included). This procedure avoids the duplication that would result if the published data included both the intergovernmental payment made by the one government and the direct expenditure from that money by the receiving government.

6.45 Payments to Other Government Insurance Trust Systems

An important exception to the above involves payment by one government to an insurance trust system administered by another, most commonly public employee-retirement systems. The payment by one government, either on behalf of its employees who are members of the plan or for general financial support, to another government's insurance trust is treated as a current operation expenditure of the paying government (for the function involved) and as an insurance trust revenue of the receiving government, not as intergovernmental transactions.

The purpose of this treatment is to avoid an imbalance between intergovernmental revenue and expenditure. Since intergovernmental revenue and expenditure are "two sides of the same coin," in theory (or a perfect data collection system) the two should always equal. Also, contributions for an insurance trust system are insurance trust revenue so long as they come from outside the administering government. To avoid the imbalance between intergovernmental revenue and expenditure that would result if the payment of the contribution were treated as an intergovernmental expenditure and the receipt were treated as an insurance trust revenue, neither of these transactions is treated as intergovernmental.

6.5 Agency, Private Trust, Investment, and Other Transactions

Government accounting records from which the Census Bureau derives statistics contain a wide variety of fiscal transactions, not all of which fall within the scope of the finance survey. This section discusses those types of transactions that are excluded.

6.51 Agency Transactions

Agency transactions are excluded from financial statistics produced by the Census Bureau.

Agency transactions represent financial activities involving the receipt, holding, and disbursement of monies which a government undertakes for other governments in the capacity of an agent--e.g., transactions undertaken without discretion on the part of the agent government. Generally, monies received from other governments or individuals for transmittal to other governments or individuals are classified as agency receipts, and the corresponding payments as agency disbursements, if the intermediate government has no discretion in determining either the amounts of such payments or the recipients (see Note 4).

The most common agency transaction involves the collection of taxes for other governments. Often, for example, a county government will collect general property taxes on behalf of all governments levying such taxes within its area. These collections are classified as tax revenue of the final recipient governments (i.e., the ones levying the tax) and are omitted from the finance statistics of the county government (i.e., the collecting agent). Another typical example is the withholding of Federal Social Security taxes from public employees salaries and their disbursement to the Federal Government. Still another type is where the county government acts as an agent of the state government in distributing aid to other local governments within its boundaries.

Census Bureau finance statistics also exclude transactions arising from agreements between the Federal Government and state or local governments whereby the latter agree to serve as agents in transmitting Federal payments to individuals (e.g., various Federal benefit payments to veterans). These are reported as Federal Government direct expenditure and as agency transactions of the state or local government.

6.52 Private Trust Transactions

Private trust transactions are excluded from financial statistics produced by the Census Bureau.

Private trust transactions comprise accounting funds that receive and disburse assets held in trust for a particular individual or corporation, such as when a government assumes the obligation of applying money to a specified use benefitting the private party for whom the fund was established, or when the government holds deposit or other monies pending fulfillment of certain conditions or pending determination of ownership. Essentially, they are funds through which the government acts as a trustee or agent on behalf of private individuals or corporations.

6.53 Investment Transactions

The receipts and payments arising from investment transactions are excluded from Census finance statistics except for any recorded profit or loss when they are sold.

Investment transactions involve the purchase and sale of securities for investment purposes, extension of loans to individuals, and receipts resulting from repayment of such loans. Their exclusion does not apply to purchase and sale of realty or tangible personal property not for investment nor to the extension and repayment of contingent loans and advances to another government.

6.54 Adjustment and Correction Transactions

Census Bureau finance statistics represent transactions that are net of refunds or other correcting adjustments. Adjustment transactions are not reported separately in Census statistics; instead, they reduce or increase amounts reported as revenue and expenditure. The exact treatment of such transactions depends on when the refund or correction occurred--i.e., whether it was in the same fiscal year or a prior fiscal year.

Same fiscal year adjustments: Revenue amounts represent gross collections less any refunds paid out during the same fiscal year. Expenditure amounts represent gross disbursements less any amounts refunded for payments made in the same fiscal year. Also, interest earnings on investments and interest payments on debt are adjusted for accrued interest on securities purchased and on debt obligations issued, respectively.

Prior fiscal year adjustments: The refund of an expenditure made in a prior fiscal year is treated as Miscellaneous General Revenue (code U99). The refund of a revenue other than taxes is treated as miscellaneous general expenditure (code E89). Refunds of prior year tax collections are treated as offsets to current year tax collections.

The chart below summarizes the rules for reporting refund and correction adjustments:

 Refund or Correction for Prior Fiscal Year
Type of dataRefund or Correction In Same Fiscal Year Taxes Other
Revenue Deduct from gross receipts. Deduct from gross taxes. Report as expenditure (E89).
Expenditure Deduct from gross disbursements. (X) Report as revenue (U99).
(X) means not applicable.
 

6.6 Internal Transfers

In general, the Census Bureau reports revenue and expenditure that originate from or are directed outside the government. Internal transactions within the government are excluded. There are so many variations to this general rule, however, that the topic warrants special consideration.

6.61 Interfund Transactions

As noted above, governments record their financial transactions through accounting devices called "funds." The different funds that account for a government's finances have fiscal transactions with each other as well. These are reported in accounting reports just like those made outside the government. Take, for instance, funds established to record the provision of services or commodities to other agencies of the same government, such as motor pools, central computer centers, central stores, garages, asphalt plants, and the like. In other cases, the general fund may transfer money to a construction (bond) fund or loan money to special revenue fund. The first type of interfund transactions, commonly called intragovernmental service funds, are included in Bureau statistics (see Section 6.62); the second type are excluded from Census Bureau statistics.

Transfers to Own Utility: A government utility often provides services or commodities to other agencies of the same government. To the extent they are identifiable, these transactions are reported as an expenditure of the activity consuming the utility services (rather than as a utility expenditure) and any corresponding revenue is excluded from utility revenue.

Other Interfund Transactions: Accounting procedures focus on the activities of funds as self-contained entities. Since Census Bureau treats the entire government as a financial entity, its statistics represent a consolidation of accounting funds. To avoid duplicating revenues and expenditures among these funds, the Bureau "nets out" such interfund transactions. Thus, revenues are reported when they "enter" the government for the first time and expenditures are reported when they "leave" the government.

6.62 Intragovernmental Service Funds (Revolving Funds)

Interfund transfers also arise when one department or agency furnishes services or commodities to others on a reimbursable basis. Such services often are reported through intragovernmental service (aka, revolving) funds. These types of internal transfers are included in Census Bureau finance statistics by reporting the payments to intragovernmental service funds as an expenditure of the activity benefitted--i.e., of the agency using the service or commodity. Since the finances of the intragovernmental service funds themselves are not compiled (with the exceptions cited in the next paragraph), then there is no duplication of data. Rather, the financial transactions of the intragovernmental service funds are "functionalized" according to the activities using its services or commodities. Unallocable amounts are reported as expenditures "not elsewhere classified."

As a general rule, the financial activities of intragovernmental service funds themselves are excluded from Census Bureau statistics since they are, in effect, reported with the activity paying for the service or commodity. However, certain financial transactions of such funds, primarily those that occur with those outside the government, are included in Census Bureau data on revenue and expenditure. These consist of:

  • The sale of surplus vehicles or other items to outsiders are reported as revenues.
  • Intergovernmental grants directly from another government--i.e., those not passing through another fund of the government--also are reported as revenue.
  • Major capital outlays of intragovernmental service funds should be double-coded as a capital outlay expenditure and as an offset to current operations expenditure. If known, they are recorded under the applicable function. (For instance, major purchase of police cars by a motor pool fund should be double-coded as K62 and as a deduction to E62). If the function is unknown, they are reported under Other and Unallocable, code 89. The purpose of this practice is to avoid understating a government's capital outlays.

  • Total salaries and wages paid during the fiscal year are included in the exhibit code, ZOO.

6.63 Interdepartmental Charges

As government financial management systems have become more sophisticated so have they grown more complicated. Certain internal transfers involving services provided to other departments no longer occur in special funds but are built into the regular accounts through a method of additions and subtractions.

Agencies often provide services to other departments on a reimbursable basis. Traditional ones, like motor pools or computer services, generally operate though intragovernmental service funds. Less obvious are legal offices, personnel and administrative departments, or even staff in functional agencies like highways.

Some governments' accounting systems report the finances for these services as expenditure of the activity receiving the service and as deductions to expenditures of the agency providing the service. The Bureau reports expenditures as shown in these reports without modification. It should be noted that such systems may understate activities, such as government administration, that are service providers to other departments.

6.7 Miscellaneous Topics

This section covers miscellaneous financial transactions and how they are reported in Bureau statistics:

6.71 Suspense Transactions

Suspended receipts and expenditures are not classified as either revenue or expenditure. Their treatment depends on the resolution of the dispute creating the suspense transaction.

Suspense transactions arise when a government's receipts or expenditures are held in "suspense" until the resolution of the condition or event that halted the transaction. For instance, taxes paid under protest are a common type of suspense transaction. If the situation is resolved in the government's favor, then the receipt or expenditure is recorded in that period. If the situation is not resolved in the government's favor, then the transaction is never reported for Census Bureau purposes.

6.72 Capital and Operating Leases

An increasingly popular finance mechanism, especially for capital outlays, is the use of operating and capital leases. The latter often replace the more traditional method of funding capital projects by issuing bonded debt.

Leases are treated in the Census Bureau classification system as follows:

  • Effective with fiscal year 1987-88 data, payments on capital leases are treated as capital outlay expenditure, either for the purchase of land and existing structures ("G" code) or for purchase of equipment ("K" code) depending on the situation. These include payments representing both principal and interest, which may be separate in a government's fiscal report. Examples include lease-purchase agreements, installment purchase contracts, and capitalized leases. Prior to fiscal year 1987-88, these payments were classed as current operations. The present treatment recognizes capital leases as a type of "pay-as-you-go" funding technique.
  • Payments on operating leases are treated as current operations expenditure ("E" code). This represents no change in classification.
  • Capital and operating leases are not treated as debt for Census Bureau purposes even if shown as liabilities in a government's fiscal report or debt schedule.

6.73 Anomalies of Government Finance Statistics

The financial classification system described above has resulted in a few anomalies which deserve mentioning.

  • All intergovernmental revenue is, by definition, included in the general government sector, including the utility intergovernmental codes first used in the fiscal year 1987-88 finance survey. Utility disbursements from these monies, however, are reported in the utilities sector.
  • Insurance trust systems often hold for investment purposes securities issued by their own government. Since these types of transactions are generally not identified in a government's records, the interest paid by the government for such securities is reported as interest expenditure (e.g., at I89) and the interest received by the insurance trust system is reported as earnings on investments. (The exception is the interest earnings of Federal Government insurance trusts since all their investments are in U.S. securities.)

6.74 Exhibit Statistics

As described above, the primary focus of Census Bureau finance statistics is the government as a whole. The four sectors of government--general government, utilities, liquor stores, and insurance trust--are additive pieces in arriving at a government's total financial activity. By definition, transfers or contributions among these sectors are excluded from Census Bureau statistics. Moreover, certain features of a government finances cannot be explained by the basic statistics because the data do not "fit" into the regular classification system.

To provide additional data that fall outside the scope of the regular classification schema, the Bureau collects "exhibit statistics." These concern total salaries and wages for the fiscal year; transactions of state liquor control systems and lottery operations; more complete data on insurance trusts, especially public employee retirement systems, including transactions with the other sectors; and special education-only data. These exhibit statistics treat the liquor store and insurance trust sectors as distinct entities, including financial transactions conducted with the parent government.

For more information on exhibit statistics, see Chapter 11 (insurance trust systems) and Chapter 12 (liquor store and lottery exhibits).


  1. The substantial amount of interest paid by the U.S. Treasury to Federal insurance trust systems (which have all their reserves invested in Federal securities) is excluded from Federal insurance trust revenue since it is an intragovernmental transfer. The principle of eliminating these interfund transactions, however, is not followed in the case of interest paid by a state or local government on any of its own securities held as investments by insurance trust funds it administers--mainly because of the difficulty of identifying such transactions. citation.

  2. The "cash" basis of accounting, now rare in its pure form, reflects actual cash receipts and outlays during the year. The "accrual" basis reports revenue when it is first earned and measurable (e.g., tax bills are sent) and expenditures when they are incurred. The "modified accrual" basis, on the other hand, recognizes revenues when they become available and measurable while expenditures are recognized when their fund liability is incurred. citation.

  3. Unlike "regular" loans to other governments, contingent loans are not reported as debt transactions for Census Bureau purposes. citation.

  4. The "pass-through" of Federal aid through the state governments to local governments, however, is treated as regular finance activities since the state usually has discretionary authority over distribution of the funds. citation.

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