the downside, higher incidence of crime and poverty. Metro areas have typically much broader responsibilities than smaller local governments. Beyond municipal services, these encompass health, welfare, and hub functions for national and international finance, trade and economic links. Because of this in some countries metro areas are treated as provinces/states. Examples include Canberra in Australia, Bangkok in Thailand, Beijing and Shanghai in China, Tokyo in Japan, Seoul and Busan in South Korea, Berlin, Bremen and Hamburg in Germany, Helsinki in Finland and others. Metro areas typically have multiple local jurisdictions and in some cases multiple tiers of local jurisdictions. Metropolitan areas also have a typically larger revenue base and greater tax autonomy and therefore greater potential for self-finance.

In view of this, the grant financing needs of metro areas are very different from other local governments. If taxing powers are adequately decentralized, there may in fact be no need for grant financing of operating expenditures of metro areas as demonstrated by Tokyo and Seoul. This, however, is not the case for most metropolitan areas. They lack autonomy in taxing powers. They have limited access to dynamic productive tax bases. Existing tax bases, especially property tax bases are overtaxed to finance municipal and education services e.g. in USA and Canada, leaving little room to grow. In the USA, this problem is compounded by limits on local revenues and unfunded mandates in environmental and social spending. In most developing countries metro governments lack administrative and fiscal autonomy and act as wards of the state and pied pipers of national and provincial governments. They are hamstring to play a leadership role in local economic development. In these circumstances grant financing can play an important role but grants must be tailored to specific circumstances of metro areas especially their broader role in local, national and international governance with an expanded array of responsibilities associated with serving as nodes of national and international connectivity and special needs of a knowledge based local economy. Grant design also must incorporate incentives and accountability mechanisms to ensure responsible and accountable local governance. This paper provides a synthesis on conceptual underpinnings of this literature as well as providing a brief overview of practices across the world based upon a review of 41 metropolitan areas. It must be noted at the outset that the assignment of responsibilities must underpin any design of grant program (see McMillan, 2008). With appropriate assignments or reassignments, it is possible to minimize need for higher level assistance for metropolitan areas. However, this paper takes these assignments (or mis-assignments) in practice as given and examines options in grant design to facilitate better functioning of metropolitan governance. An overall theme of this paper is that grants can be (and should be) properly designed in most any institutional/organizational setting --- even if the organizational setting may not seem to be ideal.

The rest of the paper is organized as follows. Section 2 provides a typology of grant instruments and discusses their rationale and relevance for metro areas. Section 3 provides conceptual guidance on grant financing metropolitan services. Section 4 outlines stylized models of metropolitan governance and draws implications for the design of higher level transfers. It also discusses impliations of exsting institutional arrangements for developing a grant strategy for 3