June 8, 1964
PAGE 12934
GROWTH OF GOVERNMENTAL INSTITUTIONS AND CRITICISM OF THE FEDERAL GOVERNMENT
Mr. METCALF. Mr. President, more than ever before, this year's presidential election process will be dominated by emotional charges and slogans about Federal spending, socialistic big Government, and Federal encroachment on State and local rights.
Therefore, I call attention to an article by our distinguished colleague from Maine, Senator EDMUND S. MUSKIE, which was published in the May 1964 issue of National Civil Review. This objective, unemotional analysis puts the growth and role of our governmental institutions in proper perspective and reveals the lack of foundation for most of the common criticisms of Federal Government. The author is well qualified to speak on this topic, because of his past experience as a State legislator and Governor and his current position as chairman of the Senate Subcommittee on Intergovernmental Relations of the Committee on Government Operations.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
DOLLARS AND CENTS OF FEDERALISM: FISCAL FACTS RELIEVE FEARS NATIONAL GOVERNMENT GROWTH HAS BEEN AT THE EXPENSE OF STATES, CITIES (By EDMUND S. MUSKIE)
The American federal system is so intricate that foreign observers rarely understand it. Even Americans are frequently bewildered by its complexity. And no wonder. Federalism operates simultaneously in four spheres of political debate and action.
Theoretically, it establishes a constitutional division of powers between the States and the Federal Government, with local government, as a practical matter, constituting another source of independent authority.
Structurally, federalism has created three separate and autonomous levels of governmental institutions.
Functionally, it comprises a series of public-purpose programs that the Nation, the States, and the local governments jointly sponsor.
Administratively, it has created three layers of bureaucracy and encouraged numerous cooperative arrangements and devices.
Since the founding of the Republic, the need for cooperation has battled with the opportunity for competition in each of these areas. More than three-quarters of a century ago, Woodrow Wilson set forth the basic reasons for this unending debate:
"The question of the relation of the States to the Federal Government is the cardinal question of our constitutional system. At every turn of our national development we are brought face to face with it, and no definition either of statesmen or judges has ever quieted or decided it. It cannot, indeed, be settled by any one generation because it is a question of growth, and every successive stage in our political and economic development gives it a new aspect, makes it a new question."
More than anything else, it is the dynamic quality of federalism and of the American people that explains the continuing agitation in Congress, within the States, and by the public at large over the nature and tendency of our Federal Union.
Are there no stable features, however, in contemporary Federal-State-local relations? A good way to come to grips with this question is to ignore the slogans and campaign oratory and focus attention on the fiscal aspects of Intergovernmental relations.
The dollars and cents of federalism tell us more about the essential nature of the system than many of the political arguments that clutter up the scene.
To begin with, big government at all levels has been one of the major developments of the 20th century. Over the past 60 years, aggregate Federal, State, and local taxes experienced nearly a hundredfold increase. Total governmental expenditures jumped from $1.7 billion in 1902 to more than seven times that figure in 1934 and to nearly $149 billion in fiscal 1962. Total governmental indebtedness amounted to an average of $41 for every man, woman, and child in 1902. Today it comes to more than $2,041 in current dollars. Past wars, the depression, the cold war, inflation, population explosion, and a mushrooming metropolitan growth are basic causes for these increases. Whether we like it or not, big cities, big counties, big States, and a big Federal Government are with us. And their emergence has occurred in Republican as well as Democratic administrations, in peace as well as war, and during conservative as well as liberal eras.
The real question raised by this development is whether any one level experienced a disproportionate growth to the detriment of another. During the thirties and World War II, Federal revenues greatly overshadowed those of State and local governments. The record since the war, however, clearly demonstrates that this gap is closing rapidly. In 1944 the State and local share amounted to only one-fourth of all governmental revenues. As recently as 1954 it still came to only one-third. State and local taxes now are two-thirds as large as the Federal take, and the Federal Government, of course, must finance defense and foreign policy commitments from its share.
The postwar Federal growth rate, then, has been modest -- even conservative -- compared with State and local. The figures for the latter demolish the widely shared belief that these levels of government are unwilling or unable to assume their proper share of the financial responsibility for the expanding services demanded by the public since World War II. In fact, if we concentrate solely on the total direct civil expenditures for fiscal 1962 (this excludes defense, space, veterans, and interest costs), we find that the Federal Government's proportion came to only 27 percent, as against more than 48 percent for local governments and nearly 25 percent for the States.
Federal aid to State and local governments is probably the most controversial chapter of the intergovernmental relations story.
In absolute terms, these expenditures have increased greatly during the past 3 decades. Federal grants totaled only about $200 million a year in the early thirties. Even with numerous depression programs, the figure came to only $2 billion by 1940. During World War II it slipped back to less than $1 billion per annum. Most of the real growth came after 1946 with the expansion of existing grants and the enactment of some 49 new programs.
This development has not been as dynamic as some would have it. Federal contributions to total State and local revenues averaged almost 7 percent in 1946. The Federal share by 1954 had risen to a little over 10 percent and, despite the enactment of the Federal highway program and other new grants, this proportion amounted to only 13.6 percent during the last fiscal year. If Federal aid figures are examined in terms of their relationship to Federal budget expenditures for civil functions, the estimated 1962 grant-in-aid share stood at 26 percent. This represents a 7-percent increase over the comparable figure for 1948 but a 4-percent drop from 1960.
Overall, these figures reveal that the proportionate growth rate of Federal grants and loans during the past decade and a half has been evolutionary rather than revolutionary. In terms of dollars, of course, the Federal aid figure nearly quadrupled during the 1952-62 period. In this connection, we should recognize that the postwar growth in national production, population, urbanization, and the standard of living has generated mounting demands for additional Government services. Any objective assessment of the role of Federal aid, moreover, must recognize the serious difficulties experienced by State and local governments in financing these expanding functions from their own limited resources.
The National Government, of course, has no exclusive monopoly on the grant device. While it was dispersing $7.9 billion to State and local governments during the last fiscal year, the States allotted nearly $11 billion in grants to their own local governments. From the local viewpoint, both National and State aid is of crucial importance. The significance of these two grant sources can be better appreciated when we remember that approximately seven out of eight dollars of local revenue are provided by the much criticized and overburdened property tax. At present, its $20-billion annual yield nearly equals the combined revenues of all State imposed taxes. Nationwide, almost half of the greatly increased State and local tax burden required to finance the postwar demands for increased local services has been borne by this tax. In light of this performance, some experts and many local officials believe that this levy has already reached the peak of its endurance.
The equalization factor is another dimension of Federal-State-local fiscal relations that is often overlooked. Since World War II, Congress has paid increasing attention to the question of whether the distribution of Federal grants should take into account the difference in the ability of States to finance these grant-aided programs from their own resources. Recognition of this varying capacity has usually taken the form of attempting to compensate for the imbalance by including an equalization provision in the matching and/or apportionment formulas. Many programs do not include this feature. In some, it has been inserted in a way that fails to accomplish the objectives of Congress; in others, it has been ignored when changing conditions indicate a pressing need for its inclusion. Of all the Federal grants enacted prior to 1963, only about one-third contain fairly explicit equalization provisions. This means that the distribution of funds or the proportion of Federal-State sharing of costs is governed partly by the differing ability of the States to support the aided programs.
Detailed statistical analysis by the Advisory Commission on Intergovernmental Relations and others indicates that these programs have not provided the additional benefit to the less affluent States that was originally intended. To put it more bluntly, Congress’ intention of leveling out some of the inequalities in grant-aided State programs has not been fully realized. Where equalization is appropriate, greater consideration should be given to a closer examination of the various indexes of program need and of the States' relative ability to support grant activities. Per capita personal income, for example, has some limitations as an effective index of the relative ability of State and local governments to raise revenues. All of these findings demonstrate the need for a judicious congressional reevaluation of the equalization factor.
In brief outline, these are the significant dimensions of intergovernmental finances. But what do they tell us of federalism's essential character? The facts indicate that
1. Today, big government is a characteristic of all jurisdictional levels.
2. In recent years, State and local governments have demonstrated an amazing capacity and willingness to assume a major share of the fiscal burdens imposed by demands for expanded public services.
3. Federal revenues, debt, and aid to State and local governments have expanded significantly in absolute terms over the past 15 years, but they have experienced only a modest rate of growth when contrasted with the comparable figures for the other levels of government.
4. With soaring State and local budgets, Federal aid has taken on added and crucial significance for decision makers at these levels.
5. Specific inclusion of an equalization factor in one-third of the existing grant programs has benefitted somewhat the less wealthy States; its exclusion from the remaining two-thirds, however, hinders the reduction of inequality in program performances within the several States.
6. If the present division of expenditures for civil governmental functions is used as an index, a rough balance exists among the Federal, States, and local governments; the only factor disturbing this equilibrium is the somewhat lesser share assumed by the States.
7. In practice, a pattern of collaboration in the fiscal and program areas exists among the three jurisdictions and the Federal and State grants-in-aid are the chief manifestations of this cooperation.
8. This grand design of cooperative federalism has emerged without undermining the independence and freedom of fiscal choice of the States and local units of government; on the contrary, many authorities believe that these joint efforts have actually reinforced the identity of these governments.
Federalism still stands as a bold attempt to combine national unity with political diversity. This analysis clearly indicates that State and local governments are still playing a vital role in Intergovernmental relations and that a balance of powers is still a paramount feature of the system. At the same time, these hard dollars-and-cents facts demonstrate that cooperation, not competition, is the best way to achieve national strength while preserving State and local autonomy.