April 29, 1975
Page 12298
THE INTERGOVERNMENTAL COUNTERCYCLICAL ASSISTANCE ACT, S. 1359
Mr. MUSKIE. Mr. President, when Senators HUMPHREY and BROOK and I introduced the Intergovernmental Countercyclical Assistance Act (S. 1359) on April 7, an explanation of the bill was inadvertently omitted. I ask unanimous consent that the explanation of the countercyclical proposal be printed in the RECORD.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
APRIL 1975
EXPLANATION OF INTERGOVERNMENTAL COUNTERCYCLICAL ASSISTANCE ACT
This program would provide targeted emergency financial assistance to hard pressed State and local governments caught in a fiscal squeeze brought on by the combination of recession and continued inflation.
The purpose of this assistance would be to help State and local governments maintain their existing levels of services and employment without raising taxes, thereby preventing them from undertaking policies that will undercut Federal efforts to stimulate the economy.
THE PROBLEM
A. During times of severe national economic difficulties, the economies of State and local governments also suffer.
As recent testimony before the Senate Subcommittee on Intergovernmental Relations revealed, that is particularly true in the current economic situation. Hit by the double whammy of inflation and recession, State and local governments are faced with paying higher costs for providing services at the same time that higher unemployment reduces their projected revenues.
B. The impact of Federal policies to stimulate the economy can be substantially reduced if State and local governments, in an economic crunch of their own, adopt policies that undercut the Federal effort:
(1) The stimulative effect of a Federal tax cut designed to put money into the economy quickly would be substantially reduced if State and local government increase their taxes.
(2) The net effect of a public jobs program, designed to create new jobs, would be substantially reduced if State and local governments lay off regular employees and replace them with public service employees.
(3) Federal efforts to stimulate the construction industry would be substantially damaged if State and local governments are forced to cancel construction of essential capital projects because they have no money to pay for them.
(4) Federal efforts to target the stimulus to those most in need – through the use of the progressive income tax cuts – would be distorted as State and local governments raised property and sales taxes which hit hardest at those at the bottom of the income ladder.
PROPOSED SOLUTION
This program would attempt to reduce the likelihood that State and local governments will adopt policies that blunt Federal efforts to stimulate the economy by providing such governments with emergency financial assistance.
This program would be distinct from revenue sharing. It is an anti-recession program. It will provide assistance to a limited number of jurisdictions – those with the most serious economic problems.
LEVEL OF FUNDING
The level of funding for this emergency assistance program would fluctuate with the national rate of unemployment.
When the national unemployment rate averages 6 % or more for three consecutive months, a maximum of $2 billion would be made available for distribution to needy State and local governments. An additional $1 billion would be made available for each subsequent percentage point increase in the national unemployment rate.
In other words, when the national unemployment rate averages 7 % for three consecutive months, a maximum of $3 billion would be available under this program. At 8 % unemployment, a maximum of $4 billion would be made available.
Similarly, as unemployment decreases, the amount available under this program would decrease.
Because the program would phase out as the economy improves, it would have less long term inflationary impact than other programs enacted during a recession. Unlike other programs that may start small and then get larger over the years, this program would start large when it is most needed – when the economy is in the greatest difficulty – and would get smaller as the economy improves.
The level of funding should provide enough funds to stabilize those State and local governments in the worst fiscal shape without making up in full the projected deficit of State and local governments. This is very important because a time of economic difficulty should be a belt-tightened time for all levels of government. The purpose of this program is not to bail out State and local governments in fiscal difficulty. Rather, it is to provide them with enough assistance so that, if they make economies of their own, they can stabilize their budgets and not be forced to reduce services or employment or taxes.
DISTRIBUTION OF FUNDS
The funds available under this program would be divided into two pots – one-third of the funds would go to State governments and two-thirds of the funds would go to local governments.
The formula for distribution to both State and local governments would take into account both unemployment and taxes raised by each recipient government with unemployment given double weight. Unemployment would provide a measure of the impact of the recession on a particular government. The level of taxes raised would provide a measure of the size of the operations of that particular government.
A. Allocations to State governments
State allocations would be made two-thirds on the basis of unemployment and one-third on the basis of its adjusted taxes. In each case the particular State's unemployment (in numbers) and its taxes raised would be compared to national totals, with the unemployment percentage weighted double. Say, for example, a State had 5 % of the nation's unemployment and raised 2 %, of all taxes raised by all State governments. With the unemployment percentage weighted, that State would receive 4% of the funds for all State governments. At current unemployment levels, the State would receive about $52 million – or 4% of the $1.3 billion available to State governments.
B. Allocations to local governments
Allocations to local governments would be made according to the same formula – two parts unemployment and one part adjusted taxes raised. For each local government for which the Labor Department has verified unemployment statistics (about 2,000 in all), there would be an allocated share. For those local governments for which the Labor Department does not have verified unemployment data, funds to be administered by the State would be set aside in each State.
Local governments for which there is no precise unemployment data would, in the aggregate, receive funds in the same proportion as the local governments for which there is unemployment data.
State or local governments whose unemployment rate drops below 6 % would not receive assistance under this program. However, a local jurisdiction with an unemployment rate above 6 % would receive its share even if it were located within a State with an unemployment rate below 6%. Any funds not expended because they were allocated to jurisdictions with an unemployment rate below 6% would remain with the Treasury – and as a result the total funding of the program would be reduced.
In addition, the legislation provides for a contingency fund to be administered by the Secretary of the Treasury, of up to 2½ % of the amount authorized for the program. This fund would be used by the Secretary for the purpose of making additional support grants to State and local governments in severe fiscal difficulty.
RESTRICTIONS ON USE OF FUNDS
It is important to give State and local governments as much flexibility as possible in the spending of these funds so that this assistance can be used to complement other Federal programs to stimulate the economy. The principal restriction that would be placed on State and local governments is that these funds be put toward maintaining current service levels.
State governments receiving funds under this program would be required to maintain their current levels of assistance to local governments.
In addition, whenever a State or local government which receives assistance under this legislation raises its taxes or substantially reduces its services, it must report that to the Secretary of the Treasury within 60 days.
APPLICATION PROCEDURE
Unlike revenue sharing, there would be an application procedure – though be it expedited – for State and local governments obtaining funds under this program. The Secretary of the Treasury is required to approve within 30 days every application that meets the requirements of the program.
CIVIL RIGHTS ENFORCEMENT
There would be a flat prohibition against discrimination in the use of any funds under this program. In any case where the Secretary of the Treasury makes a finding of discrimination by a State or local government and is unable to achieve compliance within 30 days, he would be authorized to defer payment to the discriminating jurisdiction for up to 180 days unless compliance is achieved.
WAGE STANDARDS FOR LABORERS
The legislation provides that laborers and mechanics employed by contractors on all substantial repair or renovation construction programs funded under this program be paid wages at rates not less than those prevailing on similar projects in the locality as determined by the Secretary of Labor under the Davis-Bacon Act.
FORMULA
State allocations
Definitions:
State Unemployment Percentage: The ratio obtained by dividing the number of unemployed persons within each State for the most recent quarter by the total number of unemployed persons in the nation for that same quarter.
State Tax Percentage: The ratio obtained by dividing the adjusted taxes raised from own sources by each State government by the adjusted taxes raised from own sources by all State governments.
Each State's allotment is based on the following formula:
2(SUP)+(STP)/3= % of funds authorized for allocation to State governments.
Local allocations
Definitions:
Local Unemployment Percentage: The ratio obtained by dividing the number of unemployed persons within each locality for the most recent quarter by the total number of unemployed persons in the nation for that same quarter.
Local Tax Percentage: The ratio obtained by dividing the adjusted taxes raised from own sources in each locality by the adjusted taxes from own sources raised by all localities across the nation.
Each locality's allotment is based on the following formula:
2(LUP)+(LTP)/3=% of funds authorized for allocation to local governments.