July 29, 1975
Page 25722
Mr. MUSKIE. Mr. President, I yield myself such time as I may take, and I will not take a great deal of time.
My only response to the distinguished Senator from Texas is an explanation of the rationale for what we have done in the bill.
I have great sympathy for his point of view and his approach and the problems he seeks to solve.
I say at the outset that what we have tried to put together here very carefully is the implementation of a concept which is new, which has not found it easy to fly in the Senate or in Congress — that is, to generate and increase support. That support is from a rather curious mixture of fiscal conservatives and those of us who are more liberal, who see this as providing a fiscally responsible answer to the problems of recession, combined with the need to deal with the human needs which are created by recession. I do not like to undermine that support. In other words, I should like to breathe life into this idea and get it moving before we load too much on it.
In the Budget Committee, for example, I surfaced this idea for the first time. I proposed a package much like this one, except that it was larger — public works combined with this countercyclical proposal. We had an extensive debate on it in the Budget Committee. The Budget Committee finally approved the concept, but a majority was not willing to fund it. So the report to the Senate came with approval but without funding, which was not much comfort, but which I took for what it was worth.
Then an idea was recommended on the floor of the Senate by Senator MONDALE, in an amendment he offered to the budget resolution, involving a total, I believe, of an additional $9 billion.
At that point, I felt, as chairman of the Budget Committee, that I had a responsibility to support the numbers in the budget resolution, even against some additional proposals that I had supported within the committee. So I voted against the Mondale amendment.
Nevertheless, I undertook to keep this idea alive by introducing the bill and going forward with hearings in committee, so that we might have something to put in place if the developing economic conditions justified it — justified it apart from the Senate budget resolution.
Then we went into conference with the House. The House had provided more money for public works than the Senate resolution had provided. It seemed to me that here was an opening, that we could compromise the two and give both ideas a chance to move along. We were able to get an agreement.The House conferees were more public works oriented. We got an agreement to keep both ideas alive by providing $2.1 billion in outlays in function 450, which is the community development function.
With that $2.1 billion constraint, we had to tailor this program very carefully to a real target. That is one of the reasons we are providing a $2 billion authorization instead of $4 billion, which was in the original bill. It is another reason why we have this unemployment trigger so carefully defined, so that we do not overload the amount of money we provided in the authorization.
On the heelsof that kind of careful tailoring, we were able also to suggest, as we have today, that this would match with the public works bill to which we seek to attach it, with resistance from the floor manager of the bill, which I do understand. He has a different point of view.
All I am trying to suggest with this history is to put before the Senator from Texas the restraints under which we have operated. I am very reluctant to open it up. Whenever one uses what is, obviously, an arbitrary figure like 6 percent, there are the marginal cases below that always appeal to one's reason. But this is not the first such trigger. As a matter of fact, the public works bill has a trigger of 6.5 percent, for the three most recent consecutive months, which is half a percentage point higher than the one which this amendment would provide.
Title VI of the CETA bill has a 6.5 percent trigger. So these triggers are not unkown. It is really on the basis of those kinds of precedents that we have established this one.
Let me reemphasize that we do not see this as an all-encompassing answer to all of the fiscal problems that are going to be faced in every local and State government jurisdiction in this country. It could not conceivably do that.
I mentioned earlier that the total distress at those levels of Government is pretty well measured by the $8 billion in budgetary actions that the Joint Economic Committee identified as taking place at the present time. This amendment only provides $2 billion. So there is going to have to be austerity practiced in State and local governments. There is going to have to be cutting. There may still be some increases in taxes, even in places with over 6 percent unemployment. So we are not going to solve the whole problem for anyone.
What we tried to do in framing this legislation is solve a significant piece of the problem for those jurisdictions which are hardest hit. I think a legitimate question in the Senator's argument is how did we arrive at the allocation formula? We went back to 1967-69, because that is the most recent period that was reasonably close to full employment. That does not mean there was full employment in every State and every community, but the country was enjoying reasonably full employment, so we used those figures. That is how we happened to have that base. Of course, we are going to find conditions in particular States that might appear to make that base illogical. Nevertheless, when we are trying to apply a law to 50 States and the whole country, we are bound to run into those things.
Second, with respect to communities that did not have unemployment statistics so that we could arrive at a computation of their excess unemployment statistically, we simply used a 4.5 percent figure for the base period and computed them on that basis.
With respect to the Senator's proposal for the elimination of the trigger at the State level, I am troubled because first, it does one of two things inevitably: Either it spreads the available money, $2 billion, more thinly over more eligible jurisdictions; or, two, it requires the provision of additional money. I do not see any way that we can avoid that.
Second, as recovery proceeds, and we all hope it does, more States are going to fall below 6 percent, and I do not think that is within the spirit of this legislation, to keep them on this dole. I really do not. One of the attractive features of this is that it turns off.
There are in our table, seven States that are below the 6 percent trigger. I think I am correct, according to our tables. As recovery proceeds, there are going to be more States, we hope, that join those seven. At the present time, there are States with unemployment of 6.2, 6.3, 6.6, and 6.5 percent. Hopefully, those States will begin to recover earlier than some of the more heavily impacted States.
I guess my answer to the Senator from Texas could be summarized in this way: I think that we can fashion a program that can get the support of the Senate, but which might not if we overload it. If we can get this start, maybe then we can build on it as Senators and Members of the House begin to look at it. But I would really like to see this proposal proceed as it has. I may have rambled a little bit about it, but it has been carefully put together to try to accommodate all of the considerations. I say this in all sympathy to the Senator from Texas.
Just a few minutes ago, my State lost $30 million to a billion dollars as a result of Senate action. My heart is still bleeding from that, so I understand the Senator's concern for some of the jurisdictions in his State.
With that, I reserve the remainder of my time.
The PRESIDING OFFICER (Mr. MATHIAS). Who yields time?
Mr. BENTSEN Mr. President, I yield myself an additional 5 minutes.
The Senator from Tennessee, I think, made a very valid point when he said this thing must be terminated at some point. I agree with that. But I do not move on that part of it. I just talk about the 6 percent trigger on the States and on the local governments. When the national average gets below 6 percent, that terminates the project — terminates this kind of countercyclical funds. I have left that in.
What kind of money am I actually talking about with this amendment of mine? Not a great deal, as related to the total amount of money that we are talking about in the amendment of the Senator from Maine. He is speaking of an amendment that involves $1.5 billion at the present time, under the present unemployment figures that we have. I am talking about approximately $40 million that would be denied those States that are under the 6 percent — theirs is either 5.9, as mine is, or something lower than that for some of the others.
That money goes into the contingency fund, so no one would be receiving any less money at the present time if my amendment were passed. It would mean that that money would just go into the contingency fund that would only be allocated later to very hard pressed areas. My amendment takes care of that.
We turn around and add $10 million annually to the contingency fund for every time that unemployment goes up one-half of 1 percent. The problem that we are running into with the contingency fund, as it is framed in the amendment of the Senator from Maine, is that, as unemployment goes up in this country, the contingency fund goes down, the amount of funds goes down as unemployment goes down, the contingency fund goes up. It works just in the opposite direction. I am talking about a funding that would increase in the contingency fund when we have some of the cities and some of the States that would be particularly hard pressed in times of high unemployment, that, on my amendment, would add more to that contingency fund. Again, I agree very much with the Senator from Tennessee that we want a termination on this, and that this anti-recession fund should stop at some point. And it would, because it would stop when the Nation's unemployment rate reaches below 6 percent. That would terminate it. My amendment does not negate or vitiate that in the least.
When would it terminate for these other cities or when would it terminate for these States? It would terminate for them when their unemployment got back to where it was on the base period on which the computations had been made.
Mr. President, I reserve the remainder of my time.
Mr. ROTH. Will the Senator from Texas yield for a question?.
Mr. BENTSEN. I am pleased to yield for a question.
Mr. ROTH. I wonder if the Senator knows what the current operating surplus is for the State of Texas.
Mr. BENTSEN. I certainly do not
Mr. ROTH. I regret that.
Mr. BENTSEN. No, I have no idea, and I do not know that there is one, but one was reported, and all of a sudden it was not there.
Mr. ROTH. I would point out that it is my understanding that the estimate for Texas as to current surplus estimate is $1 billion.
Mr. BENTSEN. No, that is quite an old figure that they found was not there, and that was an estimate made earlier, so the Senator's figure is out of date.
Mr. ROTH. Is the State still in surplus?
Mr. BENTSEN. I do not know.
Mr. BROCK. Mr. President, will the Senator yield to me for 4 or 5 minutes to respond?
Mr MUSKIE. Yes, I yield 5 minutes to the Senator from Tennessee.
The PRESIDING OFFICER. The Senator is recognized for 5 minutes.
Mr. BROCK. Mr. President, I understand the Senator's point of view in his proposed amendment, and I understand his position. But I think there is a danger that some of our colleagues might misunderstand the point he made about the contingency fund.
He is right that if unemployment goes up the contingency fund goes down because, obviously, less people are putting money into the contingency fund and more people are qualified for direct aid.
He is also right that the contingency fund goes up as unemployment comes down. That is the whole purpose of the bill. That is the name of the game, that is the essence of it. We do not want to have to help where there is no help required, and if unemployment goes up and the contingency fund goes down, all thatsays to us is that the bill is working as it was designed to work, and the States are getting direct support; that they do not have to come to the secretary and qualify under the contingency approach. If they are qualified under the more than 6 percent trigger which the Senator would withdraw then, obviously, they are getting the maximum level of funding, not contingency funding. They are getting it directly as a maximum impact area, and that is the essence of the whole bill that we are trying to provide a vehicle to keep them from financial disaster, but that vehicle has a self-contained termination point.
If the Senator strikes the 6 percent clause for getting it out of the coverage of the bill, then he walks away from the whole purpose of the legislation, which is, by definition, countercyclical.
When unemployment gets down to 6 percent there is no reason in the world why Texas or Tennessee cannot handle their own problems.
I will tell the Senator something, with our level of unemployment running between 8 and 9 percent, as it is now, I would give my left arm to qualify for help. I would dearly love to get out from under that 6 percent trigger and get out of Federal support because we would not need it, because we are capable of meeting our own problems, and every other State is in the same situation.
The Senator, with this amendment, strikes at the whole part of the program, the very essence of it, which is it is not only a Federal trigger but a State-by-State trigger which allows us to pinpoint our support for those areas that cannot survive without it. That is the name of the game.
But as soon as it gets back to a sustainable capacity on their own they are out. That is the only way we can end that program. That is the whole merit of it so far as I am concerned. But it does have that essential economic logic. It pertains to the problem and nothing else. If you eliminate the trigger, you eliminate the logic for the whole approach as far as I am concerned, and I appreciate the Senator's effort. I understand what he is trying to say, but I think what he is proposing would be counterproductive of the purposes of the legislation.
Mr. MUSKIE. I am prepared to yield back my time.
The PRESIDING OFFICER. Who yields time?
Mr. ROTH. Mr. President, will the Senator yield me 3 minutes?
Mr. MUSKIE. I would be happy to yield 3 minutes to the Senator from Delaware.
Mr. ROTH. One of my concerns with this legislation, Mr. President, is the fact that it is pouring Federal funds into States where there is no real need. The fact of the matter is that a number of the States that would get assistance under this program are showing a surplus at the very time the Federal Government is showing an extraordinarily serious deficit that has threatened to become larger and larger.
I have to agree with my colleague, the Senator from Texas, that the 6 percent is arbitrary. I think he is correct.
However, I think his amendment, instead of improving the situation, only makes it worse. As I pointed out, the best figures I have been able to get show that Texas, the State Government of Texas, does have a surplus, and when they do not have a 6 percent unemployment rate it seems to me a little difficult to argue that the Federal Government should pour funds into that State to increase the surplus.
The same thing is true in many other cases. There are any number of situations where, under the 6 percent formula, funds will be flowed into States with a surplus.
So far as we can determine this would include such States as North Carolina, Indiana, Oregon, Arizona, California, Idaho, New Hampshire, Hawaii, to mention just a few.
I would also like to point out that the situation in cities is not as bad as has been painted, although there are a number of areas where it is very serious.
In testimony before the House from a recent survey made of the 30 largest cities, it was shown that only 8 cities were experiencing an operating deficit. The most severe case was New York City.
This represents an actual decline in the number of cities facing a shortfall since 1971. At that time 16 cities of the 30 surveyed were operating at a deficit. The conclusion of this survey is that, with the exception of New York City, the cities are in relatively good financial position and, contrary to popular belief, the majority of jurisdictions are not in as serious plight as indicated.
Again, Mr. President, it seems to me ironical when we are again facing the threat of inflation that we should try to adopt a new program that is not going to do very much in the private sector, it is not really going to help those who are faced with unemployment, but it is going to pour a considerable amount of money into State and local governments, many of which financially are far better off than the Federal Government.
I yield back the remainder of my time.
Mr. MUSKIE. Mr. President, I yield myself 2 minutes simply to comment upon the statement by Senator ROTH. Unless I am mistaken, the figures he used included data no more recent than June 1974. Now, that is 6 months before the recession hit. I would ask unanimous consent to include in the RECORD at this point; Mr. President, an analysis of the financial condition of State and local governments by Allen Schick, senior specialist, Congressional Research Service, which, I think, gives us the latest and most accurate data we have.
There being no objection, the analysis was ordered to be printed in the RECORD, as follows:
To: Senate Subcommittee on Intergovernmental Relations.
From: Allen Schick, Senior Specialist, Congressional Research Service.
Subject: Financial Condition of State and Local Governments.
The raw statistics on State and local government receipts and expenditures in the National Income Accounts (NIA) suggest that these governments have enjoyed large surpluses in recent years. On the NIA basis, the combined surpluses of all States and localities were $12.3 billion in 1972, $9.2 billion in 1973, and $1.7 billion in 1974.
Yet these numbers are very misleading. The National Income Accounts method reflects all State and local government accounts, including social insurance trust funds. In 1974, such trust funds showed a surplus of $9.7 billion. However, this surplus is unavailable for expenditure on purposes other than those for which the trust fund was originally established. Thus, State and local governments had a combined deficit in operating accounts of $7.9 billion in 1974. (See attached chart – Table 1515 – from the March Survey of Current Business.)
Not only are State and local governments unable to make use of large surpluses in social insurance accounts for operating purposes. In addition, by far the majority are prohibited — either constitutionally or statutorily — from engaging in deficit financing.
The combined result of the State and local government deficit and the prohibition on deficit financing is that these governments now have a restrictive effect on the already weak national economy.
THE NATIONAL INCOME ACCOUNTS
The National Income Accounts provide a comprehensive and consistent statement of the State and local share of national economic activity, but they do not portray the actual budget conditions of State and local governments. The principal distinction between the budget and NIA accounts is that the latter include the receipts and expenditures of social insurance funds (most of which are for public employee retirement systems). These funds ordinarily cannot be used for general budget purposes so that a surplus in the social insurance funds cannot offset a budget deficit:
"In every year since 1929, these funds have shown a surplus on an NIA basis. In most years, these social insurance funds surpluses statistically offset general government deficits ... However, in almost every instance, surpluses generated by these insurance trust funds are not available to general governments for expenditure."
Since 1968, the annual surplus in the social insurance funds has mounted steadily from $5 billion to almost $10 billion. This means that it now requires approximately a $10 billion surplus on the NIA basis for States and localities to have combined balanced budgets. When the NIA accounts are adjusted to remove the effects of the social insurance funds, States and localities have had deficits in each year since 1968 except for 1972. This predicament was noted in the 1975 annual report of the President's Council of Economic Advisors:
"The surplus of less than $2 billion registered for calendar 1974 (on an NIA basis) was far from sufficient to meet the actuarial funding obligations imposed on pension plans for the employees of State and local governments. Since the surplus of the social insurance funds approached $10 billion, other State and local funds had a deficit of $8 billion.
"Budgetary reserves are now so tight that the rise in State and local expenditures will have to slow considerably to adjust to the reduced growth of receipts, or taxes will have to be raised in a declining economy".
BORROWING LIMITATIONS ON STATE AND LOCAL GOVERNMENTS
Most State and local governments cannot respond to their current fiscal stringency by supplementing their resources with borrowed funds. Forty States have constitutional limitations on the incurring of debt. In many states, borrowing in excess of a specified amount (or percentage) is permitted only when approved by the voters, though most States have liberalized borrowing authority for special purposes such as revenue producing facilities. However, about half of the State constitutions prohibit the state from incurring indebtedness in behalf of local governments.
Many State constitutions permit some borrowing for "casual deficits" (caused by a shortfall in anticipated revenues or above budget expenditures), but even in these circumstances there are apt to be dollar or percentage limitations on the amount that can be borrowed.
The constitutional limitations on local governments tend to be even more restrictive and many of these are supplemented by local ordinance or Charter restrictions. The constitutional limitations on local debt have been summarized by a leading authority on this subject:
"Limitations on the powers of local governments to borrow money are generally stringent. Normally, municipalities are authorized to borrow on short term revenue notes in anticipation of revenue to be collected and such short term borrowings are generally unrestrictive as to purpose. When it comes to long term bonded indebtedness, restrictions on the powers of local government are often. detailed and elaborate. In more than two-thirds of the states, there is a constitutional limit on at least some local government debt expressed in terms of a percentage of the assessed value of taxable real estate. A number of states also impose a limit on the property tax rates that can be levied for debt service requirements. Usually municipalities must submit bonded indebtedness to a referendum. A number of state constitutions provide separately for bonded indebtedness which may be incurred by municipalities for revenue sharing capital projects. These special purpose borrowing provisions have the advantage of putting certain objects outside the general debt limit. In many instances, the state constitution imposes different requirements on bond issues of different types of local governments and for different purposes."
EFFECTS ON THE NATIONAL ECONOMY
The combination of tight budgets and limited borrowing capacity has a restrictive impact on the economy. The large surpluses accumulated (for actuarial reasons) in the social insurance funds withdraws purchasing power from State and local governments and from taxpayers. These surplus funds cannot be used to stimulate the economy or to supplement the general financial resources of States and localities.
But these social insurance fund surpluses coexist with budget deficits with the result that many States and localities have been compelled to retrench, reduce their services, and lay off public employees, thereby further aggravating the economic plight of the nation.
SUMMARY AND CONCLUSIONS
State Governments: The survey of 48 states clearly indicates that the current economic situation has had a significant impact on the state government fiscal situation. In aggregate, the 48 state governments surveyed began Fiscal Year 1975 with a combined surplus of $8.5 billion, approximately seven percent of their total expenditures. This surplus will be reduced to $3.9 billion at the end of FY 1975, still four percent of total state expenditures.
Despite this significant aggregate surplus, 20 states will enact tax increases in 1975. Seventeen states will enact general fund tax increases and five will enact increases in fuel taxes, which will be dedicated to their highway funds (two states will enact both highway and general fund tax increases). The total value of these tax increases will be $2.1 billion, or approximately two percent of the aggregate state budget. The tax increases will be slightly offset by $50 million in tax reductions that will be undertaken by four states.
Significant budget adjustments will also be made in expenditures. Twenty-two states will be forced to reduce current levels of service in order to keep their budgets in balance. The total value of these expenditure reductions is $1.9 billion, again approximately two percent of the aggregate state budget. Only two states expect to expand upon current service levels, increasing expenditures above normal rates of growth by approximately $100 million.
The paradox of large surpluses accompanied by significant tax rate increases and service cuts is easily explained by more careful examination of, the fiscal position of individual state governments. Specifically, the energy-producing and farm states possess a large percentage of the unencumbered surpluses, while the high unemployment states (unemployment rates above the national average) are responsible for the vast majority of tax increases and service cuts. Clearly, there is a significant mismatch of available resources and fiscal needs.
The 13 energy-producing states entered the current fiscal year with a combined surplus of $2.1 billion. This surplus is expected to be reduced by 14 percent to $1.8 billion by the end of the fiscal year. Despite this slight reduction, the unencumbered surplus will still be eight percent of the total budget for the energy states: The existence of significant surpluses, combined with large increasesin energy related revenues, has left the energy states in a very strong financial position. Only four energy states will enact tax increases while two will enact tax reductions. The increase in revenues will be about $100 million, 80 percent from coal and oil levies, while the value of the tax reductions is about $45 million. The $55 million net tax increase is only .24 percent of total budget of the energy states. Similarly, only four energy states reduced services by a total of $100 million, while one increased services by $80 million, a net reduction of only $20 million, or only .09 percent of the energy states' budgets. The 13 energy states will undertake deflationary budget adjustments equal to only .33 percent of their total budgets.
The eight states heavily dependent on agricultural income are in almost as solid a financial condition. These eight states entered the fiscal year with an unencumbered surplus of $1.1 billion. This surplus will be reduced by 28 percent to $.8 billion by the end of FY 1975, but will still constitute nine percent of the combined budget of the agricultural states. Unlike the energy states, however, the agricultural states will partially deplete their surpluses, since farm prices have declined and farm incomes are dropping. Four agricultural states will increase taxes by a total of $170 million (80 percent in fuel taxes) while two will marginally reduce taxes by $5 million. The $165 million net tax increase is 1.8 percent of the combined budget of the agricultural states.
One agricultural state will reduce services by about $100 million, while another will increase current service levels by $20 million. 'The $80 million net decline in services is .9 percent of the agricultural state budgets. The combination of tax increases and service reductions is only 2.7 percent of the combined budget for all agricultural states.
By contrast, the 18 states with unemployment rates equal to or above the national average are experiencing severe financial problems. These states entered the fiscal year with a combined surplus of $2.3 billion, which will be reduced 83 percent to $.4 billion by the end of the fiscal year. The $.4 billion surplus is only .75 percent of the combined budget of all high unemployment states, hardly an adequate cushion in present economic circumstances. Ten of these states will enact $1.8 billion in tax increases, approximately 3.5 percent of their total budgets. In addition, 14 states will reduce current services by $1.6 billion, a reduction equal to three percent of the combined budget of the high unemployment states. The combination of tax increases and expenditure cuts is equal to 6.5 percent of the combined budget for all high unemployment states.
Local Governments: Unencumbered surpluses are much less prevalent among local governments, since they have more stable revenue bases and tend to operate with their budgets closer to balance. Nevertheless, 122 of the 140 governments surveyed entered theFiscal Year with a combined surplus of $340 million, slightly more than one percent of their total budgets. This surplus has been totally depleted and is expected to be a deficit of $40 million by the end of the fiscal year. Consequently, many local governments, without surpluses, will be forced to reduce services or to increase taxes in order to maintain a balanced budget. Local governments will enact an estimated $1.5 billion in new taxes and will reduce expenditures by approximately $1.4 billion. The $2.9 billion in deflationary budget adjustments is approximately 3.5 percent of the combined budget for all local governments.
Once again, the high unemployment governments are responsible for the vast majority of budget adjustments. Forty-seven percent of the high unemployment local governments that were surveyed will enact tax increases amounting to 8.5 percent of their combined budget. Sixty-one percent of the high unemployment jurisdictions will reduce current services by an amount equal to 3.6 percent of the combined budget for high unemployment jurisdictions. Thus the high unemployment local governments will make budget adjustments equal to 7.1 percent of their budgets. This means the average high unemployment jurisdiction will make budget adjustments equal to 7.1 percent of its budget.
By contrast, only 25 percent of the low unemployment jurisdictions will enact tax increases amounting to .7 percent of the combined budget for low unemployment jurisdictions. Similarly, only 38 percent of the low unemployment governments will make reductions in service equal to .7 percent of the combined budget for all low unemployment local governments. Thus the low unemployment local governments will make adjustments equal to 1.4 percent of their budgets. The low unemployment jurisdictions will make one-fifth of the budget adjustments that high unemployment jurisdictions make (measured as a percentage of their respective budgets).
The size of the jurisdiction is also an important consideration in evaluating local government budget adjustments, although size significantly affects only the manner of adjustment rather than the magnitude of adjustment. Specifically, smaller cities (population of 100,000 or less) were much more likely to enact tax increases than they were likely to reduce expenditures. Seventy-five percent of the budget adjustments by these governments were made through tax increases. Larger jurisdictions showed an equal propensity to affect both revenues and expenditures.
Combined State and Local Government Sector: The combined state and local government sector can be expected to enact $3.6 billion in tax increases and $8.8 billion in reductions in expenditures from current service levels. The resulting $6.9 billion in tax and expenditure adjustments represents an average 3.5 percent adjustment for the total state and local government sector. However, the vast majority of budget adjustments will occur in the high unemployment state and local governments. These governments will often be forced to make adjustments that amount to seven or eight percent of their total operating budgets.
Typically, significant expenditure reductions will be accompanied by layoffs, hiring freezes, reduced work hours and other methods designed to reduce the personnel costs of the affected government. These adjustments are already occurring in high unemployment state and local governments. Approximately half of the state governments have imposed some form of work force limitation, affecting, in aggregate, 35,000 to 45,000 positions. Almost 40 percent of the local governments have reduced or limited personnel, affecting a total of almost 100,000. The total number of positions eliminated or left vacant in the state and local government sector is thus between 135,000 and 145,000. However, the elimination of 140,000 positions understates the impact of the recession on state and local government employment. While this estimate does include positions that were eliminated or left vacant, it does not attempt to ascertain the impact of the recession on the normal expansion of employment in response to increased service demands. This growth has undoubtedly been eliminated in most high unemployment governments and is probably limited in the majority of jurisdictions.
In addition to adjustments in operating budgets, most state and local governments have made some adjustment in their capital budgets. Typically, projects have been delayed, or even cancelled in order to reduce borrowing cost or to facilitate the shift of capital funds to operating accounts. Smaller jurisdictions that fund capital projects out of operating accounts are probably the most severely affected. Unfortunately, only a limited number of jurisdictions were able to quantify the total value of capital projects affected by delays or cancellations. Conservative estimates based on those jurisdictions that could identify projects indicate that $600 million to $1 billion worth of projects will be delayed or cancelled in the upcoming year.
These deflationary adjustments in state and local government operating and capital funds will combine to remove $7.5 to $8 billion from the economy. While a small percentage of these adjustments may well be regarded as much needed improvements in government efficiency, the magnitude of the adjustments and their concentration in the high unemployment jurisdictions indicates that considerable hardship will be imposed upon the affected jurisdictions.
MAY 2, 1975
MEMORANDUM
To: Senator Muskie.
From: Lee Enfield.
Re Update on Fiscal Status of State and Local Governments.
OVERALL
Overall, declining revenues and soaring costs of State and local governments have turned a $4 billion surplus for 1972 into a deficit of about $7.9 for 1974.
Slackened growth in receipts contributed significantly to the deteriorating fiscal position (primarily for local governments — state tax revenues continued to grow at a healthy rate during the last half of 1974). Revenue growth in 1974 amounted to only $14.8 billion, as compared to $16.3 billion in 1973 and $25.0 billion in 1972.
In contrast, State-local expenditures grew at a rate in excess of 11% for 1974, 12% in 1973 and 11%, in 1972.
THE STATES
In general, the States seem to be feeling the impact of recession more slowly than the cities. While a few are in serious financial trouble, many are having few fiscal problems at all.
Nevertheless, since the beginning of the year, when we first started looking at the States' fiscal problems, there have been increasing signs that more of the States are in for trouble.
As of February, nine States were definitely predicting deficits for this year, as follows: Connecticut ($65 million), Delaware ($3 million), Florida ($232 million), Massachusetts ($350 million), Missouri ($35.5 million), New Jersey ($135 million), New York ($800 million), Tennessee ($71.4 million), and Vermont ($11 million). Wisconsin is anticipating a possible deficit of $1 billion in the next two fiscal years, though it may finish out this year with a small surplus. In Michigan, a $207 million surplus from last year has all but disappeared, and the State now faces a $103 million deficit in the next two years. New Jersey, with a deficit this year, is predicting another one of $487 million for FY 1976. Pennsylvania is expecting a currentsurplus of $143 million to be wiped out over 1975-76.
Texas — where not long ago a surplus of over $1 billion was predicted — is now anticipating a surplus of $750 million, with appropriations bills for the next two years not yet prepared.
To deal with these actual or projected deficits, several States have already asked for tax increases. They are: New York, New Jersey, Connecticut, Vermont and Delaware. Tax increases are a distinct possibility in Massachusetts and Rhode Island, though the governors there have vowed to pursue all other options first. In Washington State, the governor has asked for only a modest tax increase.
States which have cut back in services provided to balance their budgets include: Delaware, Arizona, Nebraska, Virginia, Maine,Nevada, Rhode Island, Tennessee, Illinois, Iowa, Michigan, and Utah.
According to a recent UPI survey, a number of States which began the year with surpluses are now spending them to keep even. These States include: Missouri, Maryland, Louisiana, Alabama., Washington, Georgia, South Dakota, Wisconsin, Mississippi, Ohio, South Carolina, North Carolina, Oregon, Colorado, Wyoming and Idaho.
The picture of the fiscal status of the States is constantly changing. For example, in Wisconsin anticipated revenues for this year were revised downward by $100 million less than a month ago.
Nevertheless, a fairly clear profile of the situation is emerging. On the one side are the energy and food producing States which are generally in good fiscal shape. On the other side are the industrial energy and food consuming States, for which the picture is very bleak.
THE CITIES
In general, the cities have been far more affected by inflation and recession than have the States so far.
In April, the Conference of Mayors surveyed 50 major cities on the subject of tax increases, service cutbacks and capital improvement delays. The findings of the survey were as follows: (1) With only a few exceptions, the cities were planning to increase taxes; (2) In no case was the total tax collected in 1974 or anticipated in 1975 equal to the increases in the cost of city government; (3) Most jurisdictions have had to reduce service levels in sanitation, recreation, library, health and transportation, while many of the jurisdictions anticipate reductions in police, fire and education services. The cities surveyed ranged in size from under 100,000 to over 1,000,000.
In spite of these budget balancing measures, the Conference is predicting a deficit for all cities for this year of between $5 and $8 billion.
In January, the League of Cities conducted a similar survey of 67 cities. It found 43 of the cities surveyed anticipating a shortfall of revenues from original estimates, 42 cities planning either a tax increase or a service cutback, and 36 cities postponing or canceling planned capital improvements. Among those anticipating revenue shortfalls were: eight cities in California, Wilmington, Delaware, Wichita, Kansas, and Norman, Oklahoma. Those anticipating tax increases included Englewood and Richmond, California, Augusta, Georgia, and Wichita, Kansas. Those planning reductions in city services included five cities in California, Minneapolis, and Albuquerque, New Mexico.
Specific examples of States and cities in trouble follow:
THE FISCAL CRISIS IN STATE AND LOCAL GOVERNMENTS
CLEVELAND, OHIO
Current year
Projected $16 million deficit in November 1975. Reduced to $9 million. Receive $9 million of special state aid to balance books. Lost to attrition—600 positions.
Next year
Expect to lose 500 positions by attrition. Work force reduction from 13,000 in 1971 to 9,500 by end of 1975. Revenues down 1% from 1974. 35%, (3,500 jobs) of current workforce supported by Federal money.
DETROIT, MICH.
Current year
In February, 1975 projected deficit of $20-$30 million. Now projected at $35 million. In February, laid off 1,500 workers. More layoffs expected between now and June 30th.
Next year
Project Revenues—$596 million; Expenditures—$696 million; Deficit$100 million. Substantial increase in layoffs is imminent.
BALTIMORE, MD.
Current year
Job freeze of past two years has caused 2,500 positions to be lost. Only funding emergency purchases, plus new construction.
Next year
$35 million deficit to be financed by increase in property tax and increase in state aid.
ATLANTA, GA.
Current year
During calendar year 1974, the City ran a $5 million surplus.
Next year
The budget for 1975 contained $5 million cut from 1974. With inflation, this resulted in a real cut of 18%. All hiring has been frozen since November 1974. Starting July, 1975, all employees will donate one unpaid day per month. This is expected to save $3 million.
NEWARK, N.J.
Next year
Calendar Year 1975 — $35 million deficit projected. 12% increase in property tax proposed. 800 employees face layoffs. (10% of work force) City trying to impose residency requirement for City employees.
NEW YORK CITY
Current year
$430 million deficit originally projected. Reduced in half by loss of 21,000 positions plus floating of short term notes. Bond rating removed by Standard and Poors' in April, 1975.
Next year
$1,680 billion deficit could be reduced to $880 million by an increase in real estate tax. 9,000 positions to go. Work force down 10% over two year period.
STATE OF RHODE ISLAND
Current year
Original $40 million surplus will be wiped out by the end of the year.
Next year
Budget balanced at the expense of 1,30C vacant positions — 6% of work force. All employees are to take 5% pay cut.
STATE OF CONNECTICUT
Current year
February, 1975 Governor's Budget message projected $65 million deficit — now up to $90 million. $40 million cut in expenditures has already taken place, or deficit would be higher.
Next year
Will achieve a balanced budget only if a $48 million package of new, regressive taxes is approved. No employee wage increases are built into the budget.
BUFFALO, N.Y.
Current year
Budget was originally balanced by Fall of 1974, an $8 million deficit emerge. Now the deficit has risen to $23 million.
Next year
Expect $23 million deficit unless — 1,600 are put on layoff (25% of work force) or state aid increased.
STATE OF NEW JERSEY
Current year
Budget originally balanced. A $90 million shortfall was expected in November 1974. Shortfall has risen to $140 million. All departments have cut back purchases, administrative overhead, construction, and hiring.
Next year
Must have $500 million in new tax revenues or face 20,000 layoffs (40% of work force).
ALBUQUERQUE, N. MEX.
Current year
Expect $6 million drop in revenues. May have to layoff 135 people, or 5% of work force.
Next year
Further drop in state aid will make for even tighter budget.
LOS ANGELES, CALIF.
Current year
Break even budget for 1974—first time in years that no surplus is expected.
Next year
Expect to make 5% cut from 1975. Layoffs have been threatened as the price for wage increases.
STATE OF CALIFORNIA
Current year
Surplus declined throughout the year — from $500 million in FY 1974 to expected $400 million in 1975.
Next year
Expect drop of $200 million in revenues. June 30th surplus to be $50 million. Budget now has no new school aid; state support for medical aid is down.
SEATTLE, WASH.
Current year
No new programs. Used a carryover surplus plus $10 million revenue sharing to balance books.
Next year
$10 million deficit expected.
MINNEAPOLIS, MINN.
Current year
A slight revenue drop of $2 million from a projected $130 million budget was absorbed.
Next year
The budget is $8 million below necessary operating level, and includes a 5% inflation factor. 120 vacant positions are to be abolished.
STATE OF FLORIDA
Current year
Revenues have dropped by $232 million. Spending is down $120 million — all 1974 surplus of $105 million is gone.
Next year
Budget up only 5% from current levels. State plans delay or halt in new programs to provide some cushion
MIAMI, FLA.
Current year
Ran an $11 million deficit (first in history) due to fall in construction. 400 positions have been lost since April, 1974.
Next year
No information is available since the fiscal year begins in October 1st.
BOSTON, MASS.
Current year
$20 million deficit. Tax receipts off 10%.
Next year
The size of the deficit could vary wildly — it depends on state aid for education.
WILMINGTON, DEL.
Current year
Ran a $1 million surplus, but 10% of work force was eliminated by attrition.
Next year
$3 million deficit. Only 3% increase in spending is projected over last year.
HARTFORD, CONN.
Current year
$2½ million deficit. 400 layoffs (14% of work force) expected.
Next year
No data available.
BRIDGEPORT, CONN.
Current year
$6 million deficit. 500 layoffs (15% of work force) expected.
Next year
No data available.
ST. LOUIS, MO.
Next year Possible deficit of $21 million.
NEW ORLEANS, LA.
Current year
10% decline in general fund revenues. Expenditures rising 4 times faster than revenues.
Next year
No data available.
PHILADELPHIA, PA.
Current year Budget deficit: $19 million.
Next year
Real cut in spending projected as 5%.
STATE OF NEW YORK
Current year
Fiscal year ends March 31, 1974; surplus of $128 million; 2,000 vacant positions abolished. $110 million appropriated to fund UDC boondoggle.
Next year
Original proposed budget had revenue gap of $806 million — now down to $500 million. Various tax measures must be approved by Legislature to make up the difference.
STATE OF MASSACHUSETTS
Current year
Budget originally balanced; now expect $400 million deficit — financed by 5-year notes. 100– 200 layoffs.
Next year
Each department must cut 10% across-the-board from 1975 level. Layoffs are expected.
STATE OF MAINE
Next year
1975-1977 Biennium. Expect to lose 400 jobs in health areas. Budget up only 2%. Total wage freeze proposed by Governor.
STATE OF WISCONSIN
Current year
Biennial Budget. Original surplus of $120 million. Down to $70 million now. Revenues dropped $20 million in 1975. Austerity program enacted to absorb reduced revenues. No layoffs yet.
Next year
For 1975-77, original surplus of $106 million predicted. Revenue projections down $115 million from original budget. Expected deficit now will run at least $50 million higher if expected federal funds are not forthcoming.
MILWAUKEE COUNTY, WISCONSIN
Current year
Calendar 1974 — small surplus.
Next year
Calendar 1975 — cut of $20 million from 1974 level due to loss of state aid plus limit reached on tax rates.
MEMPHIS, TENN.
Current year
2% shortfall in revenues ($2 million).
Next year
Same level of service as 1975.
Mr. MUSKIE. It is difficult to get this up-to-date information. I am not criticizing the Senator, but I do think the picture is much bleaker than that study of almost a year ago.
Mr. President, I am ready to yield back my time.
Mr. BENTSEN. Mr. President, I am ready to yield back the remainder of my time.
Mr. HATHAWAY. Mr. President, before the Senator yields back his time, will he yield to me for a question?
Mr. BENTSEN. Yes.
Mr. HATHAWAY. I just want to get clear one thing in my mind. If you eliminate the 6 percent requirement, does it not also eliminate the contingency fund, which is predicated upon the 6 percent?
Mr. BENTSEN. No, that is not correct. This is one of the points I made. The contingency fund, the amount of money in the contingency fund, goes down as unemployment goes up. That is when you need that money the most. It also increases at a time when unemployment decreases. So what I have done is provide that for every one-half percent of increase in unemployment that $10 million annual would be put into the contingency fund.
Mr. HATHAWAY. I understand that point of the Senator. I understand that the contingency fund provided in the amendment is established only because we have this 6 percent State trigger, and if that were eliminated, the Senator's amendment does eliminate it, then there is really no need for a contingency fund because that State for its non-CETA area is going to get money anyway.
Mr. BENTSEN. I am sorry, I was interrupted.
Mr. HATHAWAY. I understand the way the bill distributes this money is to take a third off the top and compute each State in, and then they go over it again and find these States that are under 6 percent, and they take their share, and that all goes into this contingency fund.
Mr. BENTSEN. That is correct.
Mr. HATHAWAY. And that contingency fund is then used to provide funds to those areas within those States that are under 6 percent, which are not CETA so that they can have some money in areas where they have higher unemployment. But if you eliminate the State's 6 percent requirement, as the Senator's amendment would do, then there is no reason for the contingency fund. I guess it would not exist, would it?
Mr. BENTSEN. No, I think what you would have is you would have a contingency fund, it would continue to exist, but those cities and States that were in particularly difficult times would have an extra consideration given to them bythe Secretary out of that contingency fund.
Mr. MUSKIE. I am prepared to yield back the remainder of my time, Mr. President.
Mr. BENTSEN. I am prepared to yield back all the remainder of my time.
The PRESIDING OFFICER. All time is yielded back. The question is on agreeing to the amendment.
So Mr. BENTSEN'S amendment was rejected.
The PRESIDING OFFICER. The question now recurs on the amendment of the Senator from Maine.
Mr. LONG. Mr. President
The PRESIDING OFFICER. All time has expired on the amendment.
Mr. LONG. Mr. President, I move that the amendment be laid on the table.
The PRESIDING OFFICER. The question is on—
Mr. JAVITS. The yeas and nays.
Mr. MUSKIE. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The yeas and nays have been ordered, and the clerk will call the roll.
The result was announced—yeas 36, nays 58, as follows:
[Roll call tally omitted]
So Mr. LONG's motion to lay Mr. MUSKIE's amendment on the table was rejected.