July 19, 1971
Page 25957
REVENUE SHARING
(Statement of Senator EDMUND S. MUSKIE before the Committee on Ways and Means, U.S. House of Representatives, Washington, D.C., June 9, 1971)
Mr. Chairman, I am grateful to you and the members of your committee for allowing me this opportunity to appear before you this morning.
Whenever I enter this room, I am struck by the awesome responsibility of this committee to originate all measures of Federal taxation – a responsibility given to the House of Representatives by our Founding Fathers.
Mr. Chairman, the nation owes a debt of gratitude to you and to this committee for its remarkable legislative achievements under your chairmanship. Landmark legislation like the Trade Expansion Act of 1962, the Medicare Act of 1965, and the Tax Reform Act of 1969 all bear testimony to the labors of this committee.
And, as you know, Mr. Chairman, you and I were in substantial agreement on all of those matters.
Today, this committee is considering another matter of landmark importance – the question of how the Federal Government can provide financial relief to State and local governments.
Mr. Chairman, while I in no way intend to minimize our differences over the issue before your committee, I believe we have substantial areas of agreement as to how the Federal Government should proceed in aiding the cities and States.
We agree, for example, that most State and, in particular, most local governments, face heavy financial burdens and are in critical need of relief.
We agree further that the Congress should and will provide them with that relief.
Mr. Chairman, you made that point very clearly just two weeks ago when you told the members of the Illinois legislature: "I will assure you that this Congress does intend to provide relief to both State and local governments. But we will do it in the right way."
Finally, Mr. Chairman, we agree that the Administration's general revenue sharing bill, as presently drafted, is not the answer to assisting State and local governments. It does not, to use your words, "do it in the right way."
The President's bill does not meet the three standards I believe must be met by any legislation Congress enacts to provide financial assistance to State and local governments.
First, it does not channel the most assistance to those cities and counties that need it the most.
Second, it does not contain incentives to the States to improve their own systems of raising revenue. For the Congress to pass general revenue sharing legislation without these incentives would be to give the State governments a carte blanche to perpetuate the inadequate revenue raising systems that have gotten them and local governments into their current fiscal crises.
Third, it does not contain what, in my view, are adequate protections against the shared revenues being used in a discriminatory manner.
I would like to dwell for a moment on what I believe is the most serious deficiency in the President's proposal – its failure to include need as a criterion for apportioning assistance to local governments. The President's formula distributes assistance at the local level merely on the basis of revenue raised. As we have determined from careful examination, that formula simply does not get the most assistance to the cities and counties that need it the most. It does not take into account the desperate needs and the eroding tax bases of our cities.
Mr. Chairman, we are all aware of the terrible plight of our central cities. We all know that cities today are called upon, like never before, to provide additional services – more police protection, better sanitation services, better schools, treatment of addicts, public health services and many others. More and more our cities are becoming repositories for the poor and the elderly. Because in increasing numbers, substantial taxpayers and businesses are fleeing to the suburbs; city governments have become hard pressed to find the revenues to pay their bills. Yet all city residents, rich or poor, young or old, demand and deserve decent services.
Last week the mayors of ten of our largest and most hard-pressed cities dramatically brought their plight before my Senate Subcommittee which is considering the same question you are examining here this morning. Mayor after mayor described cutbacks in vital services, and warned of more drastic cuts to come. In Cleveland, for example, there will be no city-run recreation centers this summer. And that city has had to fire 1500 public health doctors and nurses, garbage collectors, and recreation workers. Cleveland's plight may be a little more severe than some of our other large cities. But it is not unique.
In Newark, of 20,000 drug addicts, only seven percent are in treatment. In New Orleans, crime was up 43 percent last year and visits to VD clinics up 32 percent, but the numbers of police and health workers, for lack of funds, remained the same. In Pittsburgh, the city government cannot afford to buy new police patrol cars or build new fire houses.
In New York, Newark, Detroit, Philadelphia, and Atlanta, to name just a few, city workers face the prospect of being laid off within months if no new revenue is found. Indeed, in most of these cities same layoffs have already begun and vacancies are no longer filled.
The harsh reality is that no matter how hard they try, there is no way without outside help the cities can raise the kind of money they need to meet the rising cost of government. In Baltimore, for instance, only one out of six residents has a taxable income of more than $3,000 a year. In Newark property taxes are so high they are no longer just regressive, they are confiscatory. Buildings in that city are being abandoned so fast that a nine percent increase in the property tax rate this year resulted in a three percent decrease in revenue from that tax.
In short, our cities have reached the end of the line. Unless they get help – and get it fast – city after city in this nation may fall into bankruptcy.
There is little doubt, Mr. Chairman, that the State governments are, in many ways, responsible for the sorry status of the cities. State governments have all too often denied the cities the power they need to raise adequate.revenues. And the States in too many cases have shirked their responsibility to provide cities with financial help.
But now is no time to assess blame: The demise of our great cities would not be just a local or a State tragedy. It would be a national tragedy. That is why it is incumbent upon us – the members of both Houses of the Congress – to see to it that that tragedy is averted.
No revenue sharing legislation, at the funding levels proposed, will by itself avert that tragedy. But I believe revenue sharing, properly tailored, can move us in the right direction.
Unfortunately, the Administration's revenue sharing bill is inadequate. It would maintain the status quo.
It does not provide our large urban areas with the kind of assistance they need to survive. Rather it gives a distinct advantage to those communities which are enclaves of wealthy residents – too often residents who have fled the cities. The President's formula results, for example, in Commerce, California, receiving nearly four times as much per capita as Los Angeles, and in Highland Park, Michigan, receiving two and one-half times as much per capita as Detroit. And it results in Miami Beach receiving nearly twice as much per capita as Miami and Tampa and four times as much per capita as Jacksonville.
That is why I have introduced an alternative to the President's bill. My alternative would provide $6 billion in general financial assistance to the hard-pressed cities and to the States.
S. 1770 apportions financial assistance to cities and counties in relation to their needs as well as their population and tax effort. And my bill contains incentives to encourage the States to improve their own systems of raising revenue.
I believe S. 1770 would represent a sound beginning to solving the fiscal crises of State and local governments. It recognizes that the need for financial assistance of cities and counties with large percentages of poor people are greater than the needs of wealthy communities which can raise additional revenue on their own with little effort.
The bill accomplishes this by incorporating a "poverty ratio" into the formula for distribution to local governments. That "poverty ratio" measures two factors which have a direct bearing on the ability of a city to raise its own revenue – the percentage of families within it who receive public assistance. Cities like New York, Detroit, Philadelphia, Los Angeles, and hundreds of others, large and small, would be compensated for the fact that a large number of their residents are too poor to pay their way.
To cite just one example of the effect of the "poverty ratio" in apportioning assistance to local governments. Under the President's bill, which has no need criterion, Montgomery County, Maryland, an affluent county, receives just one-third less per capita than does Baltimore City.
Under the formula in my legislation, which includes the "poverty ratio," Baltimore City will receive approximately six times as much per capita as does Montgomery County.
I think there is another aspect of the pass-through formula in S. 1770 which, will be of interest to this committee. Unlike the. President's bill, my proposal does not attempt to decide in Washington how much assistance each local government, no matter how small or no matter what services it provides, should receive. Rather, its statutory pass-through formula applies only to those cities, counties and townships with populations over 25,000, The shares for communities below 25,000, under my bill, would be decided by the State governments, which are in a better position than we here in Washington to determine the specific needs of small communities within their boundaries.
As I mentioned earlier, I believe general revenue sharing legislation without incentivesto the States to improve their own systems of taxation could only serve to perpetuate existing inadequate revenue raising systems. For that reason, I have included two provisions in my bill to encourage, but not coerce, the States to improve their tax structures.
The first would offer a bonus to those States which collect a State. income tax. The bonus would be equal to ten percent of the State's income tax collections for the previous year.
The second provision would offer the States the option of utilizing the machinery of the Federal Government to collect State income taxes for them. Both of these provisions are intended to encourage the States to make better use of the progressive income tax rather than continuing to rely so heavily on regressive taxes like the property tax and the sales tax.
During the past decade, Mr. Chairman, the Congress has repeatedly responded to the needs of the cities and States. It declared a national war against poverty. It committed the nation to rebuilding our core cities through the Model Cities program. It has vowed to preserve our environment through programs to control air and water pollution. We must continue these important initiatives, and expand them. And we must undertake new initiatives to solve national problems, as this committee has done in yeoman fashion by reporting urgently needed welfare reform legislation.
But we can never get maximum benefit from the war against poverty, from the Model Cities program, from the air and water pollution control programs, or from welfare reform so long as the streets of our cities are strewn with garbage for lack of money to collect it, or so long as our cities remain hotbeds of crime and violence because they cannot afford police to prevent it.
What the cities and States need now is financial assistance they can use to pay the operating costs of government. They need money to pay for police and fire protection, schools, and garbage collection. It is time for the Congress to respond to this need.
Mr. Chairman, my proposal, to be sure, is no panacea for the financial ills of city and State governments. But, I believe, it is a reasonable alternative to the President's program, and I believe its provisions merit careful consideration by this committee.
I would like to say again that it is a privilege for me to appear before this distinguished committee. Thank you for your patience, and I'd be delighted to try to answer any questions members of the committee may have.