UNLIKE THE FEDERAL AID SYSTEM, STATE AID TO LOCAL GOVERNMENT HAS CHANGED VERY LITTLE IN COMPOSITION AND PURPOSE OVER THE PAST FEW DECADES. YET STATE AID HAS GROWN STEADILY IN DOLLARS. IN SPITE OF THE INCREASE, THE FOUR TRADITIONAL AREAS OF STATE EXPENDITURES TO LOCAL GOVERNMENTS STILL CLAIM OVER 85 PERCENT OF THE TOTAL: EDUCATION, HIGHWAYS, PUBLIC WELFARE, AND HEALTH/HOSPITALS. THE REPORT ALSO LOOKS AT TWO OTHER ROLES THE STATES PLAY IN THE INTERGOVERNMENTAL AID SYSTEM: AS DIRECT PROVIDER OF SERVICES, AND AS CONDUIT OF FEDERAL FUNDS PASSING THROUGH STATES TO LOCALITIES. (AUTHOR ABSTRACT)....BDS