ENTITLEMENTS OF STATE GOVERNMENTS.

SEC. 107. ENTITLEMENTS OF STATE GOVERNMENTS. (a) Division Between State and Local Governments.— The State government shall be entitled to receive one-third of the amount allocated to that State for each entitlement period. The remaining portion of each State’s allocation shall be allocated among the units of local government of that State as provided in section 108. (b) State Must Maintain Transfers to Local Governments.— 86 Stat. 923 (1) General rule.— The entitlement of any State government for any entitlement period beginning on or after July 1, 1973, shall be reduced by the amount (if any) by which— (A) the average of the aggregate amounts transferred by the State government (out of its own sources) during such period and the preceding entitlement period to all units of local government in such State, is less than, (B) the similar aggregate amount for the one-year period beginning July 1, 1971. For purposes of subparagraph (A), the amount of any reduction in the entitlement of a State government under this subsection for any entitlement period shall, for subsequent entitlement periods, be treated as an amount transferred by the State government (out of its own sources) during such period to units of local government in such State. (2) Adjustment where state assumes responsibility for category of expenditures.— If the State government establishes to the satisfaction of the Secretary that since June 30, 1972, it has assumed responsibility for a category of expenditures which (before July 1, 1972) was the responsibility of local governments located in such State, then, under regulations prescribed by the Secretary, the aggregate amount taken into account under paragraph (1)(B) shall be reduced to the extent that increased State government spending (out of its own sources) for such category has replaced corresponding amounts which for the one-year period beginning July 1, 1971, it transferred to units of local government. (3) Adjustment where new taxing powers are conferred upon local governments.— If a State establishes to the satisfaction of the Secretary that since June 30, 1972, one or more units of local government within such State have had conferred upon them new taxing authority, then, under regulations prescribed by the Secretary, the, aggregate amount taken into account under paragraph (1)(B) shall be reduced to the extent of the larger of— (A) an amount equal to the amount of the taxes collected by reason of the exercise of such new taxing authority by such local governments, or (B) an amount equal to the amount of the loss of revenue to the State by reason of such new taxing authority being conferred on such local governments. No amount shall be taken into consideration under subparagraph (A) if such new taxing authority is an increase in the authorized rate of tax under a previously authorized kind of tax. unless the State is determined by the Secretary to have decreased a related State tax. (4) Special rule for period beginning july 1, 1973.— In the, case of the entitlement period beginning July 1, 1973, the preceding entitlement period for purposes of paragraph (1)(A) shall lie treated as being the one-year period beginning July 1, 1972. (5) Special rule for period beginning july 1, 1973.— In the case of the entitlement period beginning July 1, 1976, and ending December 31, 1976, the aggregate amount taken into account under paragraph (1)(A) for the preceding entitlement period and the aggregate amount taken into account under paragraph (1)(B) shall be one-half of the amounts which (but for this paragraph) would be taken into account. 86 Stat. 924 (6) Reduction in entitlement.— If the Secretary has reason to believe that paragraph (1) requires a reduction in the entitlement of any State government for any entitlement period, he shall give reasonable notice and opportunity for hearing to the State. If. thereafter, he determines that paragraph (1) requires the reduction of such entitlement, he shall also determine the amount of such reduction and shall notify the Governor of such State of such determinations and shall withhold from subsequent payments to such State government under this subtitle an amount equal to such reduction. (7) Transfer to general fund.— An amount equal to the reduction in the entitlement of any State government which results from the application of this subsection (after any judicial review under section 143) shall be transferred from the Trust Fund to the general fund of the Treasury on the day on which such reduction becomes final.