March 8, 1973
Page 6995
SIX GOVERNORS VIEW NIXON BUDGET
Mr. MUSKIE. Mr. President, last week the Subcommittee on Intergovernmental Relations heard from a bipartisan group of the Nation's Governors on the impact of the President's budget proposals on State governments. I welcomed the spirited and healthy exchange of ideas and differing viewpoints that emerged in the hearing.
The testimony of the six distinguished Governors demonstrated to me, at least, that many of them share the uncertainty and doubts many of us in Congress have voiced about the drastic cutbacks in Federal aid for social programs and the ability of State and local governments to absorb those cuts.
Because of the particular interest and importance of this testimony, I ask unanimous consent that the statements of Gov. Kenneth Curtis of Maine, Gov. Dale Bumpers of Arkansas, Gov. Jimmy Carter of Georgia, Gov. Daniel Evans of Washington, Gov. Wendell Ford of Kentucky, and Gov. Linwood Holton of Virginia be reprinted in the RECORD at this point.
There being no objection, the statements were ordered to be printed in the RECORD, as follows:
TESTIMONY OF GOV. LINWOOD HOLTON OF VIRGINIA
We appreciate very much the opportunity to be here to discuss these matters with you.
I think this controversy should be recognized exactly for what it is, and that is, that it is a political battle between the Executive Branch of the Federal Government and the Legislative Branch of the Federal Government.
It is a very legitimate political controversy. The President has used a device, namely, impoundments, which are not novel or unique. As a matter of fact, the amount the President is impounding in the present fiscal year's budget is the lowest percentage impoundment in the last eight years.
How the President is using the device in a political battle to make the point that power and control of Federal spending should be decentralized to the states. Understandably this has evoked a massive outcry from the Congress of the United States because if you are handing it out today, why give up that opportunity? That is very simple to understand and I recognize that it is an over-simplification but this is why it has been so tough.
You recognized, yourself, Senator Muskie, how tough it was to get the General Revenue-Sharing Bill passed in the beginning and it was a simple political job. But, this President – this Administration – is seeking to give to the states a reincarnation – not of new Federalism but of the original Federalism; the way this country was established and the way it is going to have to go back if it is going to succeed economically.
If we are going to have prosperity without inflation – and goodness knows that is the problem today and that is what the President is trying to combat – he is trying to have this Congress, sir, discipline itself on the federal budget. You can have no discipline when you do not pass a single appropriations bill, adopt a budget – as every State in the Union does every year, being under Constitutional inhibitions against deficit spending which you folks are able to print money to make up the difference, but we can't.
Now in fiscal 1972, the federal government spent $231 billion. The President proposes using a device of impoundments among other divisions to hold spending this year to $250 billion. He proposes in fiscal 1974 to go to $269 billion, which is an eight percent increase. We are not in a position as Governors to talk about cuts because there will be no cuts; there will be increases. There will hopefully be a reorganization of the federal government, of the federal bureaucracy, if you please.
The President had proposed four general categories. I did this in Virginia and found it necessary to use six. I did it by the exact device that he is using now, that is, a voluntary Task Forces grouping of the agencies of the government of the State of Virginia and put voluntary chairmen in charge, just as the President proposes to put George Shultz, Earl Butz, Secretary Lynn and Secretary Weinberger in charge of the great broad areas of human resources, community development, economic affairs and natural resources.
He is attempting to replace these innumerable category grants with special revenue funds and to eliminate unsuccessful programs in favor of successful ones. I think as an example of that is Head Start with an increased funding. And I think his battle, yes his battle, to establish a reordering of these priorities is entirely in order and that the device of impoundment, not created by him, but rather by Thomas Jefferson who did it the first time, those devices are entirely legitimate devices to get the attention of the Nation and of the United States Congress to the fact that we have to control federal spending and that the best way to meet the needs of the people is to increase the utilization of the state and local governments. That is what the President proposes and he is not proposing a cut. He is proposing an eight percent increase in federal spending.
TESTIMONY OF GOV. KENNETH M. CURTIS
Senator Muskie and members of the Committee, as one of the Nation's Governors, I am extremely grateful to have this opportunity to appear before the Subcommittee on Intergovernmental Relations, and I wish to thank you and each member of the subcommittee for inviting me to testify on the impact of the administration's proposals for a new federalism, and especially his recent budget proposals.
Barely a month has passed since the President revealed his Federal budget proposals for fiscal year 1974 and his plans to reduce the FY 1973 budget by withholding funds already appropriated.
While the total picture of budget cuts, program transfers, program terminations and impounded funds is causing great confusion at the State and municipal level, the intent behind these actions is becoming quite clear. But I want to say at the outset that if the President's intent is to insist on the elimination of truly wasteful and unnecessary spending, I stand ready to support and assist him in his effort. If his intention is to find new and more efficient ways to deliver vital services to the people of this country, I enthusiastically support that effort too. But if the intent is simply to abolish a wide range of programs that, in Maine at least, have proven successful in meeting needs of the poor, the elderly, the sick and the disadvantaged, and in providing jobs, housing and education for those who won't find them without Government help, then I want to register the strongest possible protest.
Assuming for a moment the intent is to continue the current Federal commitment to these pressing needs, but in a new direction with greater dependence upon leadership at the state and municipal level, let me make the following points:
First, consideration must be given to the need for states and municipalities to plan and enact their budgets (for instance, the Maine legislature meets biennially).
Second and most important is the source of funds to finance the state budget.
In the current biennium, Maine's general fund budget is $422.5 million with an anticipated $265 million in Federal funds, for a total general revenue program of $687.5 million.
The highway budget includes $133.6 million of state money with $61.8 million anticipated in federal funds.
In total, in fiscal year 1972 and 1973, the state of Maine budgeted an anticipated $331.2 million of federal programs, in addition to $653.1 million of state funds.
So, rightfully or wrongfully, it is easy to see how dependent the states have become on federal assistance.
It is hard, indeed, to see how a transition to new methods of delivering the same level of services involving billions of dollars and millions of Americans can be managed between now and the cutoff dates that have been identified.
Therefore, the suspicion grows that the main thrust of recent administrative actions is one of cutting, rather than redirecting.
At any rate, you have invited me to give information on specifically how this new federalism would affect Maine. Because the structure of federal aid at the state level is so complex, it is always difficult to convert a federal budget into state and local-level facts.
Immediately after the budget message was released, I alerted state agencies to the urgent need to develop useable information and launched a cabinet-level effort to evaluate the President's cuts as to each federal program in Maine. I would like to give the subcommittee a preliminary summary of the results of this effort. These basic facts have emerged–
Impoundments and FY 1974 budget cuts by the President will directly strike over 80 federal programs in Maine and will indirectly affect many others.
The total loss in federal dollar aid will approach $110 million counting impoundment of $58 million in water quality funds, but not counting the total value of public facility and housing construction estimated in Maine at over $118 million.
Or multiplier effects on Maine's economy.
Or losses for years after FY 1974.
If we allow for these additional factors, the $110 million figure I have used becomes only a small fraction of the full loss to Maine. For example, last year $50 million in new housing construction, about 50 percent of total new housing starts, was under federal housing programs, yet the actual amount of federal subsidy was less than $4 million. In the Farmers Home Administration program alone, in fiscal year 1972 about $2.5 million in interest subsidy supported $25 million in housing loans for low income families.
Our State is predominately one of many small communities where Federal housing programs are the only basic means for purchasing a home.
If Maine were a prosperous State, or even if the impact of this new federalism were to be spread evenly across our population, I could be less concerned. But Maine is a State which can hardly afford to lose revenues of any kind. Over my term of office as Governor, we have suffered chronic unemployment, currently running at 6.4 percent, continuing rural poverty, and a per capita income substantially below both the national and New England averages.
As in many other States and localities with economic problems, Federal aid has come to play an increasingly important part in providing essential public services in Maine. Total annual Federal outlays in Maine now approach $800 million, of which almost $200 million flows to State and local governments where it is mixed in with other State revenues. So, Federal aid not only supplies a vital percentage of the cost of public services, but it also has become an inseparable part of many of these services. This means that when Federal support is cut, the whole structure of State and local governments is disrupted, and many more services and people are hurt than just those involved with the specific Federal programs.
Maine has a population of 1 million, and the minimum of $110 million we stand to lose over the next 18 months translates mathematically into $110 for each Maine resident, or $275 for each Maine worker.
But, that is not a true picture of the way the President's economies will be felt because they are not directed evenly at the entire population. They are directed mainly at our poor, our elderly, our sick, our unemployed, our public schools and State university and our farmers. The $50 million in lost aid over and above water quality impoundments falls almost entirely in the areas of health, housing, educational and labor services to low and moderate income people as follows:
Million
Health services$12.0
Housing subsidies $ 8.5
Public education $ 5.6
Labor programs $ 3.0
Other social services $10.0
Total $40.0
Dollar figures cannot adequately convey the loss in human terms. These program cuts could eliminate over 2,000 Maine jobs, but even more important is that additional thousands of Maine people, earning low and moderate incomes, will have diminished access to health care, decent housing, good education, job training, day care and other services.
Obviously, it is nonsense to suggest that losses on this order can be made up out of Maine's new federalism general revenue sharing allotment of $31 million per year which we understand was to be helpful in holding the line on spiraling property taxes or out of our $250 million State budget without major new taxes, especially when some 65 cents of every tax dollar collected in Maine goes to the Federal Government already.
Again, let me state we have every wish to cooperate with the administration and the Congress in defining needs within our States and working together to meet them.
But, cooperation is impossible when massive changes are made in Federal programs with little or no notice or when we are left to puzzle out what is really happening to a program, while the cutoff deadline nears.
It is simply impossible to integrate State budgets and programs with appropriations and laws mandated by the Congress, if these laws can be rendered meaningless at any moment.
Senator Muskie, I know this is not the federalism Congress intended, and I want to especially thank you and your committee for your understanding and efforts in behalf of local and State governments.
STATEMENT OF GOV. DALE BUMPERS
I would like to preface my remarks by stating that never during my tenure as Governor, have I found it so difficult to plan and budget to meet the needs of my state. Twenty-three point three percent or $192,657,372 of $826,092,843 of the budget funds which were expended by the various state agencies during the last fiscal year were federal in character. (This doesn't include funds spent for Higher Education or by LEAA.) The ambiguity and uncertainty we face while trying to work with the federal government during this time of change, increases daily in terms of new impoundments, changes in impoundments, new eligibility guidelines, anticipated guideline changes, proposed budgets, proposed budget cuts, and the continued uncertainty of what funding
priorities at the federal level will even remotely fit the needs of Arkansas. I know other states face similar situations, but with roughly one quarter of our state's revenue coming from federal sources, we need answers now.
The departments of state government report effective executive impoundments of $84.8 million in programs which either flow through their department or are related to the work performed by the particular department. (See attached material on impoundments.)
The potential impact of the President' proposed budget is even more alarming. Our rent figures show a potential loss reported by the various agencies of state government of $77.3 million, while the figures are changing the implications are clear: Social and human service programs, and rural development programs are being cut.
On the other hand, the President's budget promises greater initiative at the local level, less restrictive guidelines and great economics in administration. I champion these goals. The basic problem is the apparent federal priorities for spending do not correspond with our needs. And rather than meeting out goals, we find ourselves in a state of crisis.
For too long we have had overlapping federally funded programs through various agencies of state and local government. There is little coordination between them; the result is often a limited impact on the recognized need or problem. This only leads to the general public perceiving a waste of their tax dollar and a sense of frustration by program participants or recipients because the problem remains unsolved. I feel that new federal initiatives with proper development, can achieve the goal of more effectively and efficiently meeting our needs. To achieve this goal all levels of government must understand and concur in developing national priorities. Also, if we are to shift responsibility to the local level we must also develop the administrative ability to meet these responsibilities.
It is my conviction that the funding priorities of this administration's budget are inconsistent with the needs of our country; much less Arkansas. I can recognize that some federal domestic programs that proved unsatisfactory or inappropriate must be curtailed or eliminated. But, the priorities developed for making these cuts must be carefully established to make certain that the human needs of people are recognized.
The immediate application of restrictive guidelines and impoundments of federal funds leaves us unable to continue worthy programs. While Special Revenue Sharing may provide future relief, we are in an immediate crisis.
The facts are that at least 75% of Arkansas' existing social service programs are either closing their doors, or are in the midst of a financial crisis.
An example is community mental retardation centers. Less than 18 months ago we had 20 such centers caring for 400 children. Now we have 82 centers caring for just under 2000 children. We may have to close virtually every one of the new centers started in the past year and a half. This situation has developed because the new federal guidelines completely alter the philosophy and character of the program. These guidelines are the result of limitations placed on Title IV-A funds and prohibitions on the use of private funds for matching purposes. Such restrictions in guidelines certainly do not comply with the "spirit" of making local government and local people more responsive and responsible to local needs.
The key to all our problems with the Social Services regulations relates to a narrow categorical grant program philosophy. The "targeting" or providing specific services for a narrowly defined categorical group to accomplish limited objections is unworkable in a state that is made up of very small cities, towns and rural hamlets.
It is not logical to provide limited services to blind children who are welfare recipients when there are no services available for the other 90% of our blind children. Individuals are never encompassed by a single need category such as a welfare mother or a physically handicapped individual.
The irony is that the Social Services under Title IV-A and XVI were reasonably flexible and responsive to both individual and community needs. We responded to the federal offer, and now the contract is being broken. Is it to be the same with the next program that comes along? New programs are discarded before they have the opportunity to show success or failure.
General Revenue Sharing does not provide relief. In Arkansas' Department of Social and Rehabilitative Services alone, losses of federal support will equal half of the state's general revenue sharing funds. The losses include 1.5 million for Mental Health (IV-A, XVI, XIX), 5.5 million for Mental Retardation (IV-A, XVI, XIX, ESEA I), 1.6 million for Juvenile Services.
While these amounts may sound small to those who think in billions, they are highly significant percentages of Arkansas' total programs. Our Juvenile Services program is a good example of how various policies eliminated support for a good program. The Juvenile Services Budget for FY 1973 included 30% federal support from Title IV-A of the Social Security Act, 15% from Title I of the ESEA, and 3% from vocational education funds. Each source has been eliminated with different methods.
Title IV-A has excluded all of our programs for delinquent, dependent and neglected youth by
restrictive guidelines. The support for education has simply been phased out by Executive action.
Future promises of special revenue sharing do not help us fund critical programs which have already been cut back. It is bad business and bad economics to shut down critical programs with no provision for a transition to new funding methods. We cannot plan for the future on the basis of a federal program that may pass.
Arkansas has been spending a significant portion of the total State budget in providing an outstanding institutional program for the retarded. Retarded persons are not "warehoused" in Arkansas. Each individual has a program that moves toward return to the community and toward independence. This program budget for 1973 included $5,466,000 federal funds out of a total budget of over $17,000,000. Most of the federal funds were from Titles IV, XVI, and XIX (ICF) and approximately $800,000 from Title I, ESEA, and other grants.
Under new guidelines for these programs our most optimistic estimate is $1,000,000 and it could run as low as $300,000.
We have been advised that we would realize substantial benefits due to H.R. 1 and the Federal Government's takeover of payments for the aged, blind and disabled. This is not only no help at all to us in FY 1973 but will cost us an additional $10,000,000.
In the area of health care, I heartily agree with the President's goal of providing adequate primary health services to all of our citizens. Arkansas' need for more family physicians is acute. There are areas in Arkansas that have only one physician in an entire county. We recently prepared a plan for submission to the State Legislature that addresses itself to meeting this need. Included in the plan was a dramatic expansion of the University Medical Center increasing its emphasis on family practice and expanding services and facilities to increase our student enrollment about 50%. We anticipated a $30,000,000 expansion with $18,000,000 from state and the balance from federal funds. We are now told there will be no federal funds. It is paradoxical that the Administration's budget places a priority on primary health care, yet eliminates funding for expansion of medical school services and capital improvements.
An additional problem is the Administration's announced intent to mandate manpower revenue sharing. Arkansas will lose approximately 26% of its federal funding for Manpower Training. Current inventory indicates that over 21,000 people in Arkansas are receiving training or employment from these programs. Legislation is needed calling for adequate funding while incorporating the funding with an option for public service employment. In rural states, this option is a very valuable tool which provides employment in areas where the economy is lagging.
I am concerned about the future of programs which encourage rural development, Since its inception in 1965 EDA has spent $55,680,602 on 228 projects in Arkansas. This has accounted for approximately 29,000 new jobs. These funds were often the critical difference in small rural communities as to whether they lived or died. The same applies to the water and sewer loan and grant program of the Farmers Home Administration and to the Title V Regional Commissions
(Ozarks). Project funds spent by the Ozarks Regional Commission in Arkansas since 1968 total only $11,065,092 but have accounted for 4,545 jobs, 2,065 students enrolled in continuing programs, and a total federal impact of $24,249,489 within the state. These funds are the most useful of all because of the fact that plans for overall development are conceived locally and decisions for spending are made locally. The Title V Commissions in my opinion offer a pure form of revenue sharing (within the framework of an overall development plan). In addition they offer the capacity to deal with problems on a regional basis. These programs should be continued until a suitable alternative is provided.
There is a universal desire to eliminate waste, eliminate ineffective programs and avoid a tax increase, but while alternative programs are being developed, we should not dismantle or cripple worthwhile programs. State and local governments should be assisted in expanding their administrative capacity so that we can responsibly meet new challenges. It makes no sense to trim programs designed to improve local government or loan federal officials to local government, while at the same time piling additional responsibilities upon local government.
We need a federal approach which will permit the states to assume greater responsibility for comprehensive program development as opposed to the narrow categorical approach.. Detailed eligibility requirements for many categorical programs create red tape, excessive administrative overhead, massive federal bureaucracy, and a nearly impossible problem in coordinating and integrating programs.
Historically, city and county officials have not thought in terms of human services, but in terms of roads, parks, streets, police protection, fire protection, etc. Unless broad funding categories are defined at the federal level, priorities will be out of balance at the local level.
Between the present abused and unworkable restrictive program and open revenue sharing, there is a responsible and well balanced approach for Congress.
Congress should not respond legislatively to the categorical problems of individuals which are infinite in their variety, but to the much broader categorical needs of states and communities. We, as a State, need funds for human services and economic development. How we organize them and who we include should be the state's prerogative.
TESTIMONY BY GOV. JIMMY CARTER BEFORE THE SENATE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS, FEBRUARY 27, 1973
Mr. Chairman and members of the Subcommittee on Intergovernmental Relations. I have already submitted to the Committee as written testimony a copy of a speech which I made recently to the National Press Club concerning developing problems with state-federal relationships. But there are several additional points which should be emphasized:
First of all let it be made clear that most of our people favor a federal budget either in balance or with a total figure designed for optimum effect on our nation's economy.
My own choice would be a balanced budget.
Since the method of preparing the federal budget is part of the problem, a suggestion may be in order. The first step in the process should be to establish the overall budget amount with mutual agreement between the Presidential and Congressional leaders.
There might also be a prior legal agreement serving as a restraint on Congress that any funds appropriated in excess of this total figure could be reduced by the President in a prescribed manner, but no program should be cut more than perhaps 10%. The meat-ax approach which has been adopted this year is an open admission of inability to determine which parts of programs are effective and which are not.
Any other so-called impoundment of funds should be eliminated except as specifically authorized in advance by Congress in the appropriate legislation.
A state lawsuit against the federal government, with the consent of Congress, should be initiated immediately to let the Supreme Court (which would have original jurisdiction) decide without delay whether or not the President has a right to impound appropriated funds in direct contravention of the expressed will of Congress. The State of Georgia is considering initiating such a lawsuit.
Commitments to state and local governments on which their financing and program plans are based should never be abruptly terminated except in a national emergency and then after thorough discussions with the state and local officials.
I believe that tax reform is needed to insure fairness and perhaps to permit a balanced budget. Since 1968 an already existing imbalance has been aggravated by subtracting about $20 billion from corporate and personal income tax and by adding about $25 billion to the payroll tax, primarily on the first $10,800 of earned income for social security payments.
Since revenue sharing has resulted in a shift of financing burdens from the federal government to those within the states, tax inequities have been increased. In general this represents a shift in taxation from the progressive income tax to the more regressive sales tax and property tax.
Another great need is to remove the shroud of secrecy from around the government leaders in Washington. There should be reestablished some means for governors and other officials to communicate easily with those in the federal Executive Branch who actually make decisions. In some instances it seems that the Cabinet Officers have become figure heads and have little decision making authority.
Another handicap to state-federal harmony is that there is no definition of national goals which even if unilaterally expressed by the Administration would tend to encourage cooperative effort by the Congress and by different levels of government.
In spite of the lip service being paid to "New Federalism", local and state influence is actually being reduced because major decisions are made without consultation (and sometimes even in secret) and what flexible local funds exist must now be used along with revenue sharing funds to finance important categorical programs which no longer have the support of the Administration.
In the entire process the poor and afflicted are the losers because tax loads are shifted to them and categorical programs designed for them are being eliminated.
We all recall the promises made prior to the enactment of general revenue sharing that it would be "new funds without requiring transfers from existing Federal programs." We remember promises that "the money will be in addition to existing programs. Each [State, city, and county] will receive revenue sharing money in addition to any benefits, services, or money it is now obtaining from the Federal Government." These promises appear to me to have been broken – and now top Administration officials, as recently as this past Sunday, are denying on nationwide T.V. that the promises were ever made.
Mechanisms for encouraging interstate cooperation, regional planning and innovative government action are being abolished. For instance, there is no money in the President's proposed budget to continue the operation of the recently established and very important Title V Commissions.
All in all, Mr. Chairman, I am very much concerned about the breakdown in intergovernmental cooperation and in the commensurate weakening of our system of Federalism.
The essence of the problem is governmental secrecy which results in abrupt and unilateral decisions at the federal level. State and local officials are jerked and snatched to and fro in a gigantic game of "crack the whip". What has developed as a serious enough problem in Washington has often caused chaos in state and local planning and budgeting.
I hope that this Committee and the Congress will do what it can to afford mayors, governors and other concerned citizens a chance to speak for our people on future proposals – such as special revenue sharing. Perhaps what is needed in this particular instance is a special committee authorized by Congress and made up of officials from all branches and levels of government (as well as from private groups) to study the categorical grant system and make recommendations to the Congress on what programs, if any, could profitably be collapsed into special revenue sharing proposals.
We want to be partners again in a responsive and responsible system of government and we hope that you and the Congress can help us.
THE IMPACT OF NEW FEDERALISM ON STATE AND LOCAL GOVERNMENT
(Comments by Daniel J. Evans, Governor, State of Washington, Before U.S. Senate Committee on Governmental Operations, Subcommittee on Intergovernmental Relations, Senator Edmund S. Muskie, Subcommittee Chairman, February 1973)
INTRODUCTORY STATEMENT
I appreciate being invited here today by the Committee and to have this opportunity to present testimony on a subject which I feel is of utmost importance to the success of state and local government administration. My concerns regarding the present and future state of federal and local governmental relationships are common among any other state and local officials in the State of Washington. Therefore, I feel that I speak for many of them as well as myself here today.
Relationships between federal government officials and state and local officials have deteriorated to the point where basic structural changes will have to be introduced if we are to succeed in our prime task, that of supplying the citizens of our country with the governmental services they require. Federal Government has become too big and inflexible to effectively consider the needs of local communities and their citizens and the state and local governments just do not
have the fiscal resource flexibility to accomplish these tasks. The time is long overdue for serious consideration of these basic structural problems. I do support enthusiastically the concept and policies of President Nixon's philosophy of New Federalism, because I believe the implementation of this philosophy will result in more effective and responsive services to the citizens of our country.
State and local frustrations in Washington State with the present intergovernmental relationships result from the same fundamental problems of dealing with the Federal bureaucracies as are experienced by public officials in other areas of the country. Many of our current problems and future challenges are unique to our area and our priorities differ from other states. The development of the State of Washington is still in its formative stages and the citizens have a "once-in-a-lifetime" opportunity to plan and coordinate state growth that will assure a quality of life for future citizens. Inadequate planning, continued confusion and/or the warping of state, local and federal priorities could endanger this opportunity.
The overwhelming majority of state and local officials and many private citizens that I have had the opportunity to talk to during the recent election campaign are extremely concerned that the Federal Government has grown too large. Some 40 years ago expenditures of state and local governments were more than three times those of the Federal Government. Today this pattern has reversed, with the Federal Government spending in excess of the total of both the state and local governments. Many frustrated public administrators believe that federal resources could be better allocated if they were planned and managed by state and local governmental units themselves and this, I am sure, is echoed by a large segment of public opinion.
I hope, in the next few minutes, to focus upon what I believe to be major immediate problems, to provide some examples of our frustrations in dealing with these problems, and to very briefly discuss some proposed solutions.
President Nixon has introduced several proposals to Congress that would begin to implement the policies formulated upon the concept of "New Federalism." Very briefly, these are: proposals to reorganize and consolidate several major departments; decentralize federal governmental decision-making by the organization of ten federal regional councils; and the general and special revenue sharing programs.
It is this last component, special revenue sharing, that I would like to address at this time.
THE CATEGORICAL GRANT
During the late 1960's in the State of Washington, it became increasingly apparent that the requirements for public service were outgrowing the fiscal resources available to provide the services. Thousands of people were induced to migrate into our state by a highly accelerated local economy. Many new public facilities and increased services were required in a vastly shorter time frame than originally planned. However, our state and local tax structure, based primarily upon, and constitutionally limited to, property and sales taxes, could not produce the revenue growth required to keep pace with our increasing need for services. The fiscal problems of both our state and local governments were intensified by the very nature of the tax structure. The majority of the burden fell upon the low and modest income citizens of our state. In contrast, federal tax revenues, based primarily upon a progressive income tax structure, increased at a much faster rate and automatically grew as the national economy expanded.
Congress recognized this widening gap between the demand for local services and the revenues available as a national trend at a much earlier date and introduced the concept of federal grant-in- aid programs. In 1957 categorical or specific purpose grant-in-aid programs developed to provide fiscal resources to state and local governments totaled $3.8 billion. At the present time, there are over 1,000 individual categorical grant programs distributing over $40.0 billion in federal grants each year.
This uncoordinated proliferation of grant programs has created a highly complex and frustrating administrative nightmare, with which our local officials have to cope. Each grant program has been independently enacted with a specific national purpose in mind, has its own allocation and matching funds formulas, and includes a multitude of regulations, organizational requirements and program planning, management and audit instructions. Yet, in spite of these rigid and inflexible procedures, the real needs of our citizens have not been met and we at the state and local government levels are confronted with a vast, complicated and expensive administrative bureaucracy.
The expense of this redundant and unnecessary administrative activity associated with categorical grant program management was vividly demonstrated to me recently. Our state budget office advised me that on a recent Housing and Urban Development project, amounting to $1 million, the cost of only the preparation of the proposal, including the necessary applications, and the administration of the contract would amount to $30,000. At the same time, they also advised me that on a recent Law and Justice grant for $10 million, the comparable costs for the same activities amounted to $30,000.
This accounting, which encompassed only a small portion of the costs of administering a categorical grant program, indicates that a tenfold reduction in administrative costs could be achieved by including more funds in special revenue sharing programs.
RECENT EVENTS IN THE STATE OF WASHINGTON
A classic example of the failure of the present federal systems to respond to local needs can be illustrated by recent events in the State of Washington. Early in 1970 layoffs by our largest industrial employer began to signal a serious downturn in our state's economy. There were indications that we could expect thousands of additional persons to be unemployed for extended periods of time, and it became obvious that our priorities had to be realigned in a very short order. Our priorities had been ordered for the highly accelerating economy which we had been experiencing during the preceding three years. An immediate re-direction was necessary to implement the specific emergency unemployment, public assistance and other human resource programs required to provide for the human needs of our citizens.
Both the state and local governments were faced with immediate and severe losses of tax revenues and it became apparent that they could not respond alone to the crisis. It was obvious that help would be required from the Federal Government and that large amounts of aid would be required to provide emergency income maintenance, social services and the impetus to economic development necessary to initiate a recovery.
The onerous task of soliciting for federal funds during this period is now past history. After many, many trips to Washington, D.C. to confer with federal departments and our congressional representatives, it became apparent that the typical federal grant-in-aid program was too inflexible to respond to the needs of our particular crisis.
As a result of considerable and extended efforts by myself and other state officials, local officials, private citizens and the members of our congressional delegation, Congress did enact legislation providing for emergency employment, and unemployment compensation in crisis areas throughout the country.
One particular item which received considerable national and international publicity was associated with the Department of Agriculture's food stamp program. The Department's regulations provide for the distribution of food stamps to low income families regardless of whether they were able to qualify for state public assistance. However, during July 1971, at the depth of our decline, the Department revised its food stamp regulations which resulted in a significant portion of the approximately 26,000 families receiving food stamps, but not receiving public assistance, to become ineligible due to increased income eligibility standards. In addition, the food stamp program as designed, was for short term emergency use only.
On still another front, attempts by local officials, our congressional delegation and private citizens to persuade USDA administrators to temporarily modify regulations in order to allow for the distribution of surplus agricultural commodities within the state proved embarrassing to all concerned. During our prolonged negotiations with the USDA, the citizens of Japan proceeded to donate a shipload of food to our citizens. Needless to say, that not long after this incident had received considerable national publicity, the USDA did make a decision to allow the simultaneous use of surplus commodities and food stamps within our state.
Many similar situations, occurring during this period, can be used to illustrate our frustrations in establishing local priorities and urging federal departments to respond to the crisis without having the proper mechanisms established to do so. However, I would like to proceed with a few examples of our present problems of working with categorical grant programs which we believe to be of equal importance.
In addition to the problems connected with the establishment of broad state priorities, are the day-to-day frustrations concerned with detailed program planning and management. Detailed program regulations constantly multiply, disappear and modify in response to ever-changing administration and congressional thrusts. Because of the magnitude of programs relative to the various governmental functions and services, state and local agency planners and administrators are rarely finished evaluating and implementing one regulation when another is issued.
MEAT AND POULTRY INSPECTION
A specific example of federal over-regulation of a categorical grant program is our recent experiences relative to USDA's regulations and procedures concerning the federal meat inspection program.
Present requirements provide for state financial participation in federal meat inspection program on a 50-50 matching basis. The United States Department of Agriculture manages this program from Washington, D.C. through our state Department of Agriculture. All program regulations have been developed by USDA for uniform application throughout the country. The regulations are highly structured, rigid, arbitrary, and provide little flexibility to state administrators. State administrators did not contribute to the development of the detail regulations but are charged with the responsibility of their day-to-day application.
USDA regulations provide a multitude of program guidelines, inspector qualifications and training procedures, inspection standards, regulations concerning who will be inspected, designate where and how the inspections will take place, and set forth detailed reporting procedures.
An attitude has developed among state program administrators, inspectors and producers that, I am sure, will interest the committee. Dissatisfaction and distrust of federal bureaucrats has become more increasingly evident as a result of this type of over-regulation and centralized management, State program administrators and inspectors who have to cope with the day-to-day inspection problems, bear the brunt of expressions of this dissatisfaction. Since the federal regulations have been imposed upon the states, state officials have recommended to USDA that the legislation be amended to modify the matching requirements to provide for an 80-20 matching ratio. This recommendation has not been accepted by USDA and the Department has indicated that it is a state program and that a 50-50 matching ratio is favorable to the state. At the present time, state relationships with USDA relative to the meat inspection program have deteriorated to a level where we feel that the Department should be given the opportunity to fund, regulate and manage their program one hundred percent.
Now, the original intent of the federal meat inspection legislation was to provide strong, uniform quality control over United States meat production. Poultry inspection was recently added to the legislation and fish and other seafood will probably be next.
I believe that it is in the best public interest to protect our citizens from disease and poor quality meat and poultry products. We have had an excellent inspection program in our state for years. However, I feel that the need to comply with regulations and procedures that were designed for the most part to regulate large meat producers and packers in the mid-west is not necessarily the most effective method to regulate meat production in the State of Washington.
Some confidence must be displayed by USDA and other federal agencies in our ability to design and administer programs. Broad program guidelines and standards could be issued by the federal departments. The states should be allowed to participate in the programs by developing detailed regulations and standards which would be approved for compliance by USDA.
THE MATTER OF SOCIAL SERVICES
One additional item that I would like to address at this time is the manner in which the Federal Government has provided for social welfare services. Specifically, my comments are directed toward the social services component of the Social Security Act.
In the late 1950's the original Social Security Act was amended to provide social services to those persons in need of public welfare. The broadening and expansion of this provision during recent years is a classic example of federal incrementalism. The federal Department of Health, Education and Welfare was organized to facilitate and enable the implementation of this legislation and to institutionalize its growth and development. Federal funds were channeled through the Department of Health, Education and Welfare to state governments based upon, in most cases, a 50-50 federal-state government matching ratio.
By the mid-1960's social service eligibility requirements were broadened to include not only present welfare recipients, but those individuals who had previously received welfare or were most likely to become eligible in the future. In some specialized situations, federal requirements permitted matching funds to be allocated to private institutions outside the jurisdiction of state governments.
State governments were led into the undesirable situation of seeking one categorical grant program after another to obtain needed funds for these expanded federal programs. The purpose, rules and regulations of many of these programs were not completely understood by local level administrators and were not always carried out in the manner intended by Congress. During recent years, state expenditures in the human resources area have doubled and tripled, yet little has been accomplished to meet the real needs of our disadvantaged and handicapped citizens. State priorities have been warped and its tax revenue structure and fiscal management abilities strained to provide the state matching funds.
Both Congress and the Federal Administration, in recognition of these problems, in 1972 placed a lid on spending for social services. The once federally encouraged expansion followed immediately by the imposition of a severe expenditure ceiling and a still lower recommended budget level will result in the lay-off of personnel and the termination of services to the poor, who are at this point, simply bewildered by the change in direction, and becoming increasingly distrustful of their government. The full impact of this major thrust and subsequent contraction in services to the disadvantaged will not be understood for many years.
One last illustration of the problems encountered by both state and federal governments in specific grant program management relates to specialized library services. An amendment to the social services title of the Social Security Act provides for a program of specialized library services to minority and disadvantaged persons. Our State Library was strongly encouraged to apply for funds and to implement a program for the State of Washington. After many months of negotiations between federal and state officials, the contract, an organization plan and a program plan were approved. Again, after many months of negotiations between our State Library and the local libraries participating in the program, contracts were approved to initiate the service.
While we did have some difficulty dealing with the federal regulation which stipulated that the eligibility of each minority or handicapped individual participating in the program had to be established, ultimately this problem was finally cleared up and the services were about to begin when Congress placed a lid on social service funding and the program had to be cancelled.
On this effort relatively large amounts of money have been expended on a vast amount of planning and paper work and a great number of minority and disadvantaged citizens have been disillusioned by government.
INCREASED CITIZEN INVOLVEMENT
The fundamental issue in each of the problems I have cited is embodied in both the general and special revenue sharing concept.
Who can best respond to the needs of our citizens?
Congress has expressed concern as to whether or not local officials would really spend the revenue sharing funds on the kind of programs and in a manner that would achieve the necessary results. Congress has further questioned whether local officials, who have difficulty responding to or overcoming local pressures can effectively meet the needs of local citizens. It has also been assumed that Congress, because it is removed from the local pressures, can be more responsive to these needs. Perhaps the reason for these concerns and corollary assumptions were true in past times, but times have changed and the state and local governments have changed. They have become more responsive to the needs of their communities while Congress, because of its distance from local problems, has become less responsive to these issues.
Today we have reached a point in representative government that radically differs from the government that existed a short decade ago. State legislatures across this country have been redistricted to provide far greater representation of the people. We now have a broader participation in the election of our state and local officials. Our young citizens now have a chance to vote and participate in state and local decision-making. The use of modern communication techniques have increased public awareness of critical issues thus giving these citizens a
greater opportunity for direct input into the governmental decision-making process.
As I have talked to Governors and other public officials in other states, I find that the explosive increase in the number of citizens who express their views to their state representatives or visit their state capitol is not a unique phenomenon in the State of Washington.
A striking example of this desire to participate in government recently occurred at our state capitol in Olympia. Almost 1,000 people from the small town of Snohomish came to Olympia, not to protest, but to express their concern over the need to reform our state tax system. These people, who made up over one-half the population of the town, were concerned with the level of state support to local education. Businesses were closed in Snohomish and schools were let out so that school children could participate and express their views on this critically important issue of school finance.
It could be true that at one time the state and local governments were unrepresentative and unresponsive to the people and that Congressional action was necessary simply to get programs initiated and insure that the necessary improvement did take place.
Times have changed and it is now at the state and local government level where our citizens can and do provide a direct input into the operation of government. This is something they have not been able to do at the Federal Government level because all too often the only testimony heard in Congress is not from the general public who are involved in the issues, but from powerful special interest groups organized and financed to lobby for their particular solutions to local problems.
A CHANGE IN CONGRESSIONAL ATTITUDE IS REQUIRED
I believe that one of the most serious obstacles standing in the way of basic programmatic changes is the attitude of federal representatives. Over the years they have grown distrustful of state and local governments. This lack of trust manifests itself in a no-confidence attitude toward the capabilities of local citizens to run their own affairs. By an equal measure, the practice of returning public funds to the people who earned them through using arbitrary and restrictive techniques has resulted in a growing distrust among our citizens toward all levels of government.
Our citizens are developing a high level of insight into governmental administration and its problems. Techniques are being developed to enable citizens to become aware and therefore, more involved in government. In a real sense, times have changed, and Federal Government representatives must become aware of the significance of this growing change and develop new means of restoring public confidence in government.
I believe the general and special revenue sharing proposals of the President are an important first step in restoring public confidence in government. The State of Washington has shared revenues with local governmental units for years. Our state budget for the 1973-75 biennium includes state-collected revenues that are shared with local school districts, cities and counties which total in excess of $1 billion. This has been our practice for approximately 40 years. Included within this sum are amounts which will represent 24 to 28 percent of city and county general purpose funds and few strings are attached to the expenditure of these funds. The amounts shared are derived from a number of tax revenue sources that were designed to share revenues. The cities and counties share liquor, motor vehicle excise, motor vehicle fuel, public tax revenues and profits, fines and fees from liquor sales, recreational vehicle registrations and revenue resulting from the leasing of state lands.
At the local governmental level, highly trained professional administrators and part-time citizen officials working with involved citizens set goals and priorities, plan programs, develop detailed budgets, allocate and administer funds. Very often projects are not approved (as for example Seattle's 1970 Mass Transit Proposal) or scrapped by the citizens when it has been determined that they are too expensive or ineffective (as for example Seattle's R. H. Thompson Expressway).
It is my opinion that many very capable individuals have entered state and local government service during recent years. The recent recession in the State of Washington introduced new highly qualified individuals into government service and special effort has been under way during my entire administration to encourage individuals from private commerce and industry to join government. Management techniques and skills developed by the private sector are being introduced into governmental administration to an increasing degree.
We have consolidated many state agencies into a limited number of functional departments. Departmental procedures are being streamlined. State statutes are being reviewed and modernized, program procedures and instructions updated and simplified, and our communication lines with local citizens improved through the organization of a new Community Development Agency.
During recent elections, the voters of the state approved a Washington Future Program, authorizing the sale of $415 million in state capital investment bonds during the next six years. This program will be directed by a small staff, a one page set of guidelines, and a two page application form. However, we anticipate that one of our major problems will be concerned with the application for, and administration of, the necessary federal matching funds.
SPECIAL BLOCK GRANTS
Based upon the historical experience of our state, I believe a major step toward the elimination of the distrust, confusion, resentment and frustration between citizens and government and among the levels of government can be achieved through the use of the block grant concept of special revenue sharing.
The narrow targeting of categorical programs is a formidable barrier to the coordination of resources to meet the needs of individual communities which differ across our state. The solution is simply to do away with the many narrow categories and to provide responsible state and local authorities and citizens with the power to use federal money in ways they themselves devise.
Special revenue sharing or block grants which merge functionally related categorical programs into large accounts for flexible use by state and local officials would eliminate much of the terrible tangle of grant programs, which are a primary source of confusion and distrust.
The U.S. Department of Justice, Law and Justice Program is a commendable example of how special revenue sharing would work. The Department of Justice, Law Enforcement Assistance Administration, issues a series of program guidelines. The state, working with the local communities, develops a state law and justice plan. The plan is submitted to LEAA for approval. LEAA, in turn, allocates a block of funds to the state and the state distributes the funds to the local communities according to the plan. Administrative problems are resolved between the state and local governments with a minimum of frustration. While there were a few initial procedural problems, the program by any measure must be considered successful and a specific example of how federal administrative cooperation with local government can be achieved.
CONCLUSION
I would like to restate my strong support of the concept of New Federalism and, in particular, the application of special block grants.
Categorical grants characterized by many over-lapping and duplicated programs, loss of efficiency and the misguided imposition of federal priorities on state and local communities have created a bureaucratic nightmare.
The continued support of the categorical grant concept represents the continuation of the federal government's distrust in the capabilities of communities to manage their own affairs.
A willingness by Congress to join with the states in an enthusiastic adoption of the special revenue sharing programs will result in a significantly higher portion of each taxpayers dollar reaching the ultimate beneficiary of these programs.
STATEMENT BY GOV. WENDELL H. FORD OF KENTUCKY TO THE SENATE GOVERNMENT OPERATIONS COMMITTEE'S SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS ON PRESIDENT NIXON'S PROPOSED BUDGET FOR FISCAL 1974
The purpose of this statement is to provide a realistic, matter-of-fact assessment of the $268.7 billion budget submitted to the Congress by President Nixon for Fiscal Year 1974.
The stated objectives of President Nixon's budget are:
(1) to curb government spending in an effort to reduce inflation;
(2) to move away from big government and place more responsibility with state and local governments;
(3) to avoid an increase in taxes; and
(4) to work toward achieving a balanced budget by Fiscal Year 1975.
Viewed in the abstract, these are commendable objectives. Analysis of the proposed budget for Fiscal Year 1974 shows, however, that the stated objectives and the actual impact of the Nixon budget are two entirely different matters.
I favor fiscal restraint. I favor reduction of the federal deficit. I favor the philosophy of state and local governments assuming more responsibility in delivering needed services to the people. And I favor the concept of people doing more for themselves.
Yet the rhetoric does not coincide with the budget proposals, and unfortunately, what has thus far been advanced for public consumption from the White House is not the reality of this budget. It is, therefore, incumbent on the Congress, the Governors and local officials to clearly explain that what Mr. Nixon is saying and what his budget dictates are most assuredly not one and the same.
I believe we have a coordinated responsibility to first make the public aware of what can actually happen to our social, economic, and environmental systems, then try to alter the programs so they will indeed come more into line with the President's publicly expressed intentions.
Without this generation of a new spirit of leadership on all our parts, we will have to assume a share of the blame for what appears inevitable through the implementation of this budget.
The contents of the proposed budget make a mockery of stated objectives.
(1) In curbing government spending in an effort to reduce inflation, why must the main brunt of this effort fall upon many domestic programs serving important human and social needs? Is this the price to pay for the relaxation of price and wage controls under Phase III? The record of the Nixon Administration in dealing with the cruel problem of inflation does not inspire confidence.
As with the proposed budget, the approach of the Administration in seeking to curb inflation seems more inspired by desire to protect the economically and socially privileged, rather than to improve the performance of the economy in serving the needs of the people.
(2) Reducing the role of the Federal Government and placing more responsibility with state and local governments is a desirable shift in political structure. However, it is totally unrealistic to believe that this shift can be accomplished upon the preemptive command: Sink or swim. In Kentucky we have recently undertaken a full-scale reorganization of state government to strengthen our capability to take on more responsibility as well as improve efficiency and effectiveness in program planning and implementation. As foresighted as our effort may have been, it was based on the common sense realization that there must be an orderly transition in the devolvement of Federal programs to the state and local levels of government. The proposed budget for Fiscal Year 1974 clearly does not provide for an orderly transition.
This lack of proper transition is very apparent in the Administration's proposed changes in economic development programs such as abolishing Economic Development Administration (EDA) aid programs.
EDA funds have been cut off entirely for any new projects. This means that projects in early planning stages for EDA funding will come to a halt. Even if the funding for the Rural Development Act of 1972, to which the President proposes to shift financing, is quickly approved, many months will be required to set up the Federal administrative mechanisms to handle new development projects. Additionally, the Rural Development Act is administered by the Department of Agriculture, which certainly is not as well oriented to industrial and commercial development as the Department of Commerce which administers EDA. Planning and initiation of new projects will be delayed or entirely halted – and Kentucky's economic development will be slowed. Such rash actions of the Administration present a profound threat to the entire concept of shifting Federal responsibilities to state and local governments. That is, the disruption and dislocation of programs involved in the proposed budget could – indeed will likely – discredit the idea that state and local governments can successfully assume greater responsibility.
(3) Avoiding an increase in taxes is perhaps the most deceptive of the stated objectives of the proposed budget. Throughout the Nation, state and local officials were told by the Nixon Administration that General Revenue Sharing was being provided to relieve fiscal crises facing state and local governments. The proposed budget for Fiscal Year 1974 is clearly at variance with the avowed purpose of General Revenue Sharing. State and local governments will be thrown upon their own resources to try to sustain programs slashed or terminated in the proposed budget.
This is completely contrary to the fundamental idea underlying revenue sharing, which is that there is economic and social advantage in using Federal taxing power to support programs administered according to priorities set at state and local levels of government. The proposed budget is a retreat from revenue sharing.
As a further example, the proposed budget does not avoid increased taxes. It actually increases the most regressive of taxes as evidenced by increased Medicare charges and costs to be borne by those least able to pay.
What the budget shifts from the Federal government to the state and local government is the acute problem of balancing income and expenditure.
Another way of looking at the President's tax posture is that he is shifting the federal deficit to states while increasing the costs of states to subsidize the rest of his budget.
(4) With respect to balancing the Federal budget in Fiscal Year 1975, considerable skepticism must be expressed. The ability of the Nixon Administration to properly manage the economic and financial condition of the Nation has yet to be demonstrated. The greatest threat to attainment of a balance of income and expenditure in Fiscal Year 1975 is clearly the continuing failure of the Nixon Administration to bring the Nation's economy to full employment. The proposed budget for Fiscal Year 1974 would have direct adverse effects on employment, and indirect, or secondary, effects of an adverse nature on public confidence and expectations. Rather than promising a balanced budget in 1975, the proposed budget for Fiscal 1974 has in it the seeds of economic failure and disillusionment.
The tragedy of the Nixon budget for 1974 is not just in the termination and crippling of specific programs. The greater tragedy is its rejection of the alternative of devising an orderly transition of Federal responsibilities to the state and local levels of government.
Additional comments are submitted concerning specific programs and fiscal impact the 1974 proposed Federal budget will have upon the state of Kentucky. However, there is no way to determine the full impact of the proposed budget, because many changes require substantive legislation which has not yet been submitted to the Congress, Also, programs such as the navigation and flood control projects, administered by the Corps of Engineers, which are scheduled for a $500 million cutback in Fiscal 1974 cannot be adequately analyzed because the proposed budget does not indicate project priorities.
HUMAN RESOURCES
The first area of concern is the Administration's lack of support for meeting human needs. Mr. Nixon's budget message states, "The 1974 budget for human resources program, like the three that have preceded it under this Administration, reflects my conviction that social compassion is demonstrated not just by the commitment of public funds in hope of meeting a need, but by the tangible betterments those funds produce in the lives of our people.
The President is correct in stating that his budget strives to meet human needs like the three that have preceded it under his Administration. The only problem is that the states are just learning what the President means when he says "tangible betterments" and it took the currently proposed regulations by the Department of Health, Education and Welfare in regards to social services under the Social Security Act to teach us this.
"Tangible betterments" refers to the financial status of the Federal purse and not to the lives of our people. Under the proposed regulations of the Department of Health, Education and Welfare, the state of Kentucky stands to lose in excess of $15 million for the provision of social services to our needy citizens. For example, services for emotionally disturbed and abandoned children and for the prevention of drug abuse are severely diminished. The regulations as written would require a sudden and almost complete change in the type and level of social service program the state could deliver through the help of Federal matching funds. This is a perfect example of "tangible betterment" for the Federal purse while we forsake the needs of our nation's poor.
The President's Budget Message states the following objective: "We can and will find better ways to make the most of our human resources – through the partnership of a restructured Federal government and strong state and local governments and with the help of a socially committed private sector that is bolstered by a revival of individual initiative and self reliance among our people." The private sector is willing. Yet the proposed social services regulations preclude the use of donated money from private and voluntary sources, and impose severe restrictions on use of funds from public sources as the state's share for Federal matching. This contradiction in words and actions is dramatic.
Congress has mandated a ceiling of $2.5 billion for social services and yet the President's budget only proposes the expenditure of $2 billion. The Department of Health, Education and Welfare should assist states by providing guidelines which enhance the states' capability to respond to identified social service needs. Instead, the proposed regulations so severely restrict the social service delivery capability of states as to raise the legitimate question – is it the Administration's intent to dismantle social services entirely?
Another example of the contradictions inherent in the President's budget are the major changes proposed in the Medicaid program. On the one hand he says that the proposed changes will be more beneficial to the nation as a whole, while on the other he has stated that the cost to Medicare patients will increase. How can it be beneficial to the nation as a whole when several million Medicare recipients will be forced to dip into what little savings they may have to pay the increased cost, or the states will be forced, from their limited resources, to see that the elderly people have adequate hospital care? Although, the increased cost to Kentuckians in terms of dollars and cents is incalculable, we know that there are approximately 330,000 Kentuckians covered under the Medicare Insurance Program who will be affected. The President's program calls for the deductions for hospital services to be raised from the present $72 to a deductible which will require the beneficiary to pay the actual first day room and board charges plus 10 percent of actual hospital charges thereafter.
The Department of Health, Education and Welfare said the changes are aimed at establishing "a cost awareness on the part of the Medicare consumer which, besides its effect on over-utilization, should inhibit hospital price increases." Who really contributes to over-utilization? The Administration points a finger at the Medicare recipient. I do not believe that the Medicare patient is the major cause of over-utilization. How many people can walk into a hospital and admit themselves, or how many hospitals will accept a man walking in off the street as a patient?
A doctor has to admit a patient and the hospital has to accept him. The doctors and the hospitals contribute to over-utilization to a far greater extent than the patients. Penalizing the patient because of mismanagement over which he has no control cannot be morally justified.
It has been estimated that since 1967 United States hospitals have probably overcharged the Medicare program in excess of three hundred million dollars. The responsibility for the end cost of the Medicare program lies primarily with the Department of Health, Education and Welfare administrators. If an effective review system were utilized to eliminate "overutilization," I believe we would not be faced with placing more financial responsibility on the Medicare beneficiaries. Utilization by doctors and hospitals of out-patient facilities would greatly decrease Medicare costs.
The proposed shifting of costs for medical services are just as traumatic to the Medicare recipient. The present deductible of $60 and 20 percent of remaining cost are proposed to be increased to $85 and 25 percent of all remaining charges. President Nixon has said, "The changes will reduce the financial burden for one percent of all Medicare patients who are hospitalized more than sixty days, when they now have to start paying a share of their bills." I submit that the "reduced financial freedom" will accrue to the Federal government – not to the Medicare recipients who are already paying a share of hospital and doctor bills. The Administration's proposal is an apparent attempt to shift the health care crises to the shoulders of those who are least able to pay for medical services, primarily the elderly on minimum fixed incomes.
Administrative costs for medical services are estimated to run as high as thirteen percent of benefit payments, which is an astounding figure for administration. If the President is desirous of trimming the budget, he should start with the administrative costs of his own programs and not at the expense of the elderly people who are covered under Medicare.
The President's 1974 budget proposes a legislative change which would eliminate the eligibility of adults for dental services under Medicaid. Such a cut would deny dental services to approximately 13,000 Kentuckians annually. The federal participation in this program, in Kentucky, is about $243,000 per year.
The termination of the Hill-Burton program as proposed in this budget will cost my state an estimated $5.8 million next year in much needed health facilities construction money. We are not trying to expand hospital beds needlessly in our state, but rather need to modernize, upgrade, and replace over 1,500 hospital beds and 700 nursing home beds that are below acceptable standards of modern day care. If these funds are terminated, the improvements of these facilities will have to be delayed indefinitely.
The elimination of federal support for immunization of children against measles, rubella and polio will mean that approximately 150,000 of Kentucky's children will not receive these services next year. Kentucky is still feeling the effects both financially and emotionally of the last rubella epidemic in our state. The epidemic cost Kentucky families dearly in terms of lives and disabling handicaps. We feel that the rubella immunization program should be continued.
EDUCATION
Elementary and secondary education
The President's proposed budget would entirely eliminate programs supported under Titles II and V of the Elementary and Secondary Education Act (ESEA) and Title III of the National Defense Education Act (NDEA). Elimination of these programs means no Federal aid for school support services such as libraries, textbooks, and audio-visual aids; no Federal aid to strengthen the State administration of educational programs; and no Federal matching (50-50 ratio) funds for remodeling laboratories and classrooms in elementary and secondary schools. The elimination of these programs will result in a loss of $2.9 million to Kentucky.
Abolishment of the Federal subsidy to school districts for non-military employees with children who live on private property will cost Kentucky schools $3.5 million. Abrupt termination of this program will cause serious financial problems for many local school districts. No program with potential financial consequences of this magnitude should be abruptly terminated, but should be phased out in an orderly process.
The Administration has explained (p. 1077, Appendix, The Budget of the U.S. Government, Fiscal 1974) its proposed amendment to reduce the current year appropriation request for the Elementary and Secondary Education Act by $15.8 million, with this statement: "The proposed decrease takes into account the availability of General Revenue Sharing funds for local educational agencies." However, the State and Local Fiscal Assistance Act does not permit local governments to expend general revenue sharing funds for educational programs.
Libraries
The budget proposes elimination of all categorical aid programs for public, local school, and college libraries. In addition to $1.4 million loss to local schools for library aid, Kentucky's public libraries will lose $1.0 million for library services.
Termination of aid for local libraries apparently rests upon the assumption that local governments will use General Revenue Sharing funds to replace the discontinued categorical grant programs. Such actions are clearly at odds with the original promises made when revenue sharing became a reality.
Apparently the Nixon Administration does not consider adequate library resources as a necessity for the development of a sound basic educational program. Such lack of library support could seriously jeopardize the accreditation of elementary and secondary schools and our institutions of higher learning.
Education revenue sharing
Special education revenue sharing, as proposed in the 1974 budget, would combine some thirty narrow categorical aid programs into an educational assistance package categorized into five broad-purpose grant programs. It is impossible to assess the total effect of this program change on Kentucky because the special education revenue sharing legislation has not been introduced in Congress. It is clear, though, that some programs will suffer significant reduction. For example, Titles I and III of the Elementary and Secondary Education Act would be continued under special education revenue sharing, but in the 1974 federal budget these activities would be continued at the 1973 funding level. Thus we would have "continuation reduction" for some of the programs being folded into education revenue sharing.
Legislation for education revenue sharing should provide advance funding for state agencies to assure sufficient time for adequate financial and program planning. The present situation, in which delayed appropriations are common practice, creates such uncertainty that thorough planning is impossible.
Education revenue sharing legislation should also recognize that all states and local governments have problems of a varying nature and of a different magnitude. To accommodate these differences, the state governments must be permitted latitude in deciding program priorities, and they must be provided with a realistic level of financial support.
In examining the President's proposal for special education revenue sharing submitted to the last Congress, we found that federal aid for education in Kentucky would have been less than under the categorical programs, except that the proposed legislation guaranteed that each state would not receive less than the average received in recent years under categorical programs. Such a guarantee in this year's legislation is essential for Kentucky.
The use of 1970 census data in calculating allocations next year makes it even more important that any legislation include a guaranteed continuation support level. In Kentucky, as in certain other states, population has been increasing, but the relative growth rate has been less than the Nation. Therefore, Kentucky would receive less of the total aid available – unless rather large increases are made in the federal appropriations. Lacking such increases, the poorer states, like Kentucky, will receive a lesser share of the federal education dollars in 1974.
Higher education
Over the last few years, Kentucky's institutions of higher learning have been financially buffeted by changes in federal regulations as well as changes in federal funding. Increased social security contributions and federally mandated changes in workmen's compensation regulations, unemployment insurance guidelines, and in occupational safety regulations have drastically raised costs for our state institutions. Last year alone the increased cost to one of our institutions was over $2 million.
The same institution will lose approximately $1 million a year in federal support under the proposed budget. Gentlemen, this is a net loss of $3 million in funds for direct program support. The only way the institution can absorb such loss is to cut back programs.
It is especially distressful that our institutions of higher learning face significant reduction in federal support at the very time that federal laws and regulations, as well as inflation, have substantially increased their costs of operation. Improvements in workmen's compensation, unemployment insurance, occupational safety, and social security with respect to employees of universities and colleges is desirable, but we should be concerned that financial support be sufficient to avoid impacting institutional budgets to the point that instructional programs are damaged.
The President's budget requests full authorization of $959 million for Fiscal 1974 and a supplemental appropriation of $622 million for Fiscal 1973 to fund the Basic Opportunity Grants Program authorized by the Education Amendments of 1972. The full funding of the Basic Opportunity Grants Program is a step in the right direction to assist needy students of our state to attain a college education. However, it appears that along with the recommendation of full funding for the Basic Opportunity Grants, the President has disregarded a provision of the Education Amendments of 1972 which bars the awarding of Basic Opportunity Grants in any fiscal year, if the appropriations for Supplemental Educational Grants, Work Study Payments, and National Direct Student Loans are less than specified by law.
The President's proposed budget for 1974 does not satisfy these minimums. The Basic Opportunity Grants Program is laudable, but Kentucky will take a step backwards without support of the companion programs. With no money available to supplement the Basic Opportunity Grants from the scrapped National Direct Student Loan Program and the Educational Opportunity Grant Program, many students may be left marooned with only half the aid they need to attend college.
Kentucky's public and private colleges and universities received $20.8 million in federal support from the National Direct Student Loan, Student Educational Opportunity Grants, and College Work-Study programs last year. The probable support under the Administration's proposed budget for these programs will approximate $3.1 million, which is entirely for college Work- Study Payments. This represents a potential deficit of over $17.0 million in institutionally controlled student aid funds which cannot be replaced by Basic Opportunity Grants and Federal Insured Student Loans, especially where the decisions on recipient selection and award amounts are made outside the educational institution.
A viable student aid program must continue to include substantial funds, which can be targeted by the educational institution on students having substantial financial need. Therefore, funding of the existing campus-based programs at the levels required by the Educational Amendments of 1972 should have priority over funding of the new Basic Opportunity Grant Program.
Moreover, students and parents need to know very soon what to expect from student assistance programs for enrollment in the fall semester of 1973. Hasty implementation of the Basic Opportunity Grant Program with its new needs analysis requirements and administrative structures may result in greater confusion than we experienced with the Federal Insured Student Loan Program in the fall of 1972. Implementation of the Basic Opportunity Grant Program is at least four to six months behind right now for Fiscal 1974. The prudent course may be to delay implementation of this program until Fiscal 1975 and shift the funding to the other programs already in operation.
The President's proposal creates serious problems for students in Kentucky, for in some of our institutions over 50 percent of the student body requires some form of financial assistance in order to attend college. It is further complicated by the fact that 45 percent of all students attending a college or university in Kentucky come from families with incomes of less than $9,000 and 22 percent from families with incomes below $6,000. As you can see, opportunities for education will be limited for some students in Kentucky, because not enough avenues of financial aid will be available to meet college expenses.
A major contradiction in the President's budget is in the area of health education. We have heard the President talk about improving the delivery of health services and lowering the cost of medical care through advanced and innovative delivery systems and by proper use of medical personnel. In an effort to extend the services and knowledge of our physicians, we should educate and train doctor's assistants and various other para-professionals in the delivery of medical care.
Just as our schools are getting geared up to provide this instruction, the President proposes a budget that reduces drastically the federal funds necessary to support the programs. It is estimated that our public universities alone stand to lose in excess of $750,000 in nurse and allied health manpower training funds. How can we be expected to improve the quality of medical care in Kentucky without these funds to educate the essential personnel?
The President's budget contains $31.4 million for interest subsidies on past loans obtained in the private market for construction of academic facilities. The Department of Health, Education and Welfare has said that no new loans will be subsidized and no funds for direct loans or grants will be made.
College enrollments are stabilizing, and the need for expanding college campuses has diminished. However, our institutions still have a very serious problem in replacing facilities that are antiquated or obsolete. Without interest subsidy grants, our colleges and universities will not be able to modernize and update their campus facilities to keep abreast of the educational needs of a rapidly changing society. The loss of these grants will increase our financing cost by as much as 4.5 percent or over $1 million a year for anticipated construction projects on our campuses.
Agriculture is one of Kentucky's most vital economic resources and is an industry that concerns us greatly. We are constantly looking for ways to improve our own agricultural industry for we believe its viability is vital to the economy of our state. It troubles me greatly to see the President take over $300,000 away from my state's agricultural research program. Apparently he feels there is no need to try to improve upon our farming techniques or to try to find methods of increasing productivity. It is especially ironical that the President should cut back for such research at the very time that rising food costs are a major national issue.
ECONOMIC DEVELOPMENT
Economic Development Administration
The proposed budget eliminates all Economic Development Administration (EDA) activities. This abrupt halt of EDA activities will stifle the industrial development thrust that has been attained in many economically depressed areas. If such development funds are totally eliminated, Kentucky will be forced to provide an additional $3-5 million annually from state funds to carry out essential industrial development and related activities – such as construction of industrial sites in depressed areas of eastern Kentucky.
Additionally, immediate abolishment of EDA will have a severe impact on Kentucky's ability to construct vocational education facilities. It was anticipated that Kentucky would receive approximately $8.6 million over the next two fiscal years for state and local vocational facilities.
Now we are quite uncertain about the future source of funding for these much needed educational facilities.
Discontinuing EDA Title V planning grants to regional development districts would mean the loss of approximately one-quarter million dollars in planning grants for the area development districts in Kentucky. In order to maintain area planning operations on a continuation basis, all or part of the EDA share must be met from other state or federal sources. The President proposes to shift support of such sub-state planning agencies to Comprehensive Community Planning (HUD 701) funding. However, the proposed budget increase for HUD 701 programs is only one-fourth of the amount that is cut in similar EDA funds.
Outdoor recreation
Budget reductions for the U.S. Department of Interior's Land and Water Conservation Fund, which supports the Bureau of Outdoor Recreation (BOR), will result in a loss of nearly $2 million for the state. These funds provide the essential land acquisition dollars to promote the economic and recreational opportunities of Kentucky. Since tourism and recreation play such an important part in Kentucky's economy, this will be a severe setback for the state – and an additional, unanticipated drain on state dollars.
Rural environmental assistance
An end to the 30 year-old Rural Environmental Assistance Program (REAP), formerly known as the Agricultural Conservation Program, will deny Kentucky farmers $5 million in cost-shared programs that emphasized the conservation of our soil, our trees, our water, and other natural resources.
Housing
On January 5, 1973, the federal government established a moratorium on all new low income subsidized housing programs.
This includes both the HUD 235 and 236 programs as well as the Farmer's Home Administration 502 program. The Farmer's Home Administration programs, as well as the HUD 235 program for renovation of existing housing, has been cut off completely since there is no pipeline of advanced commitments. The effect of this moratorium on HUD programs for open space public housing, rent subsidy, rent supplement, public facilities loans, and water and sewer project grants is a freeze on nearly $30 million for various projects in Kentucky, that are currently in the application stage. In the Fiscal 1974 budget proposal, no funds have been requested for these housing subsidy programs pending a review by the Nixon Administration. With this complete freeze, and the resulting uncertainty about any future federal funding for housing, state and local governments are put in the precarious situation of not having any incentive for planning new housing developments, since the Administration seems reluctant to make available any funding. The drastic need for housing is clear; but with the funding cut, we will see a severe decrease in low and moderate income housing.
Development conclusions
In appearance, the Administration's proposals are to shift funding of programs currently financed by EDA, Model Cities, Urban Renewal, Rural Electrification Administration, and many other rural and urban community development programs to the Rural Development Act of 1972 and the proposed Urban Community Development Revenue Sharing programs. In fact, however, the Administration's proposals would cut total dollars for development activities. True, state and local governments would be able to undertake urban renewal or model cities projects – if they discover some magical way to stretch one dollar far enough to buy two dollars in program services.
Additionally, the proposed Urban Community Development Revenue Sharing is not to be effective until Fiscal 1975. This will create a totally unnecessary delay in planning and initiation of new projects between the time that the categorical programs are terminated and the time that the new urban development program would begin.