Targeted Fiscal Assistance Act of 1986

Targeted Fiscal Assistance Act of 1986 - Amends Federal law to replace the general revenue sharing program with the Targeted Fiscal Assistance (TFA) program. Authorizes appropriations for TFA for FY 1987 through 1989.

Provides for special allocations of TFA funds for Indian tribes, Alaskan native villages, and the District of Columbia.

Directs the Secretary of the Treasury to allocate TFA funds to each State (for subsequent allocation to local governments) according to a specified formula based on the need factor, the general tax effort factor, and the relative fiscal gap factor, as defined in this Act, for each State. Entitles local governments to a portion of such State funds according to a specified formula based on the following factors, as defined in this Act, for each unit of local government in a State relative to all units in such State: (1) the unit's population; (2) the unit's general tax effort factor; and (3) the unit's relative income factor. Eliminates provisions allowing State variation of local government allocations. Sets forth maximum and minimum limitations on local government entitlements.