A bill to extend for 5 years the operation of the State and Local Fiscal Assistance Act of 1972, and to provide that each State will receive the State government allocation only if it elects an equivalent reduction in the amount it would receive in specific categorical grant programs.

Amends the State and Local Fiscal Assistance Act of 1972 to authorize appropriations to the State and Local Government Fiscal Assistance Trust Fund for the entitlement periods of each of fiscal years 1981 through 1985. Reduces by one-third the funds authorized to be provided for such entitlement periods.

Directs the Secretary of the Treasury to establish within the Trust Fund a State government account and a local government account for entitlement periods beginning after September 30, 1980. Declares that the State account shall receive only funds transferred from categorical grant programs.

Declares that the amount a State government is entitled to receive from the Trust Fund for any entitlement period beginning after September 30, 1980, shall not exceed the amount of the categorical funding reduction elected by that State for that entitlement period. Authorizes the chief executive of a State to designate categorical grant programs under which the State's allotments are to be transferred to the State government account of the Trust Fund. Directs the Secretary to transfer such designated program funds to the State government account.

Declares that such a transfer of funds alloted to a State under a program shall constitute a payment to that State for purposes of provisions of law providing for the reallotment of amounts not paid under the program to a State.