The United States is undergoing a transition as state governments reclaim responsibilities that the federal government had assumed earlier in the century. Sorting out which governmental body should take charge of various services is the subject of this report. It focuses on two critical issues in the relationship between state and local governments: which level of government should finance services, and which level of government should deliver those services. Delegating governmental responsibilities presumes that a more fundamental question has been answered--whether government should provide the service at all--has been considered and answered affirmatively. The following five principles constitute a framework for sorting out responsibilities between state and local governments: (1) provide the clearest possible separation of responsibility between state and local governments; (2) assign program responsibility to the lowest possible level of government unless there is an important reason to do otherwise; (3) consider the fiscal effects of state mandates on local governments; (4) assume state responsibility for programs where uniformity or statewide benefits will result; and (5) provide state financial assistance to local governments that have the lowest capacity to raise their own revenue. Case studies are included to illustrate each principle. Principle 1 covers "The Special Case of Education" (p.5). (RJM)