On financing, both local entities and state-owned enterprises will require financing other than user charges if they are to supply public goods or subsidies. Local entities can be financed locally if local governments can streamline their tax systems and broaden the base and improve the collection of property taxes through more accurate property valuation and better administration. Borrowing by local governments or state-owned enterprises may be justified for capital spending for which benefits will occur in later years, but major borrowing throughout the public sector should be subject to central approval, especially when government guarantees are given. If central government grants and subsidies are justified on equity grounds, then they should be designed to provide incentives for efficient cost recovery. Local accountability for use of borrowed funds, grants or subsidies can be increased through regular and reliable auditing by central authorities.