October 22, 1975
Page 33574
THE NEED FOR ANTIRECESSION LEGISLATION
Mr. MUSKIE. Mr. President, I am hopeful that in the near future House and Senate conferees will begin work on H.R. 5247, antirecession legislation providing for public works programs and countercyclical assistance to State and local governments around the country.
In preparation for that debate, I ask unanimous consent to have printed in the RECORD at this point a series of up-dated questions and answers about the countercyclical assistance proposal.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
QUESTIONS ON COUNTERCYCLICAL ASSISTANCE
Q. What is countercyclical assistance?
A. Countercyclical assistance is emergency financial assistance targeted to State and local governments which have been hard hit by recession. The amount of assistance provided varies with changes in national unemployment — rising when unemployment does the same, and declining when unemployment recedes. When national unemployment drops below 6%, countercyclical assistance would be terminated.
Q. Is countercyclical assistance a sensible way to stimulate the economy?
A. Yes, for four main reasons.
First, the impact of the funds spent will be immediate.
Second, aid is targeted to help mostly those governments which have been hardest hit by the recession.
Third, countercyclical assistance will phase itself out as the economy improves. Thus the stimulus will be provided only when it is needed.
And fourth, countercyclical assistance can strengthen the stimulative effect of other Federal antirecession efforts by reducing the reliance of State and local governments on budget actions which run counter to Federal efforts to stimulate the economy.
Q. How can the budget actions of State and local governments undercut Federal efforts to stimulate economic recovery?
A. During a recession, Federal economic policy is aimed at stimulating greater economic activity, through tax cuts and job-producing programs.
State and local government, however, do not have these options. Almost without exception, they must operate on a balanced budget. Thus when tax revenues decline and the demand for recession-related services (i.e., unemployment compensation; food stamps, welfare, etc.) increase due to higher unemployment, these governments must either raise taxes or cut back on services in order to close the budget gap.
The problem is that these budget actions run counter to what the Federal government is trying to do to stimulate recovery. The Joint Economic Committee has estimated that State and local governments are or will be taking about $8 billion out of the economy — through tax increases and job layoffs — at the same time that the Federal government is putting nearly $30 billion back in. This working at cross purposes does not make for sound economic policy.
Q. Isn't it a good thing for State and local governments to trim their budgets somewhat? Couldn't this bill be construed as just a "bailout" for irresponsible and wasteful fiscal management at the State and local level?
A. To be sure, there is fat in all levels of government, and during a recession some belt- tightening by all governments is necessary.
However, the estimated budget gap for State and local governments at the end of 1974 was approximately $8 billion. With national unemployment at 8.5%, the amount of assistance provided under the countercyclical program would be only $1.75 billion — enough to provide some breathing room, but hardly enough to completely relieve State and local governments of all budget pressures. The need to cut back will still be there.
Furthermore, it is not sound policy for governments to be able to provide good basic services — such as police and fire protection — during good times, but be forced to lower the quality of such services when the economy is unhealthy.
Q. Isn't countercyclical assistance a lot like revenue sharing?
A. No, for several reasons. First and foremost, countercyclical assistance is a temporary antirecession measure only. Revenue sharing, on the other hand, was enacted as a more or less permanent fixture in the Federal grant-in-aid structure.
Second, countercyclical assistance would go to only those governments which have been hard hit by the recession. By contrast, revenue sharing goes to virtually every local government in the country.
The purposes of the two programs are quite different as well. Revenue sharing was enacted in an effort to decentralize decision-making in the Federal grant-in-aid system.
Countercyclical assistance, on the other hand, recognizes the preeminence of the Federal government in setting national economic policy, and argues that such policy will be strengthened if State and local governments are not forced to take budget actions undercutting that policy.
Q. With both public works and public jobs programs, why do we need countercyclical assistance too?
A. Countercyclical assistance is a logical complement to both these programs.
The countercyclical proposal is designed to have an immediate impact. Public works programs, on the other hand, generally have a longer lead time. Inasmuch as the current recession promises to be slow in receding, it makes sense to have an antirecession policy with both immediate and more long-range impact.
On the public jobs front — one of the principal problems with the public jobs program today is that local governments, faced with severe budget restraints, are laying off employees only to replace them with employees paid with Federal funds. Thus the ultimate objective of the public jobs program — to reduce unemployment — is being blunted. Countercyclical assistance could actually strengthen the impact of the public jobs program, by reducing the need for local governments to resort to this practice.
Q. Isn't the objective of an antirecession bill to create jobs? How would the countercyclical proposal do this?
A. The Congressional Budget Office (in a report released September 2, 1975) has estimated and compared the job-producing impact of various antirecession proposals. They found that countercyclical assistance actually rated second, out of four alternatives, in job-producing impact — behind public jobs, but ahead of public works. A general tax cut ranked lowest of the four policy options in job-producing impact.
Q. How does countercyclical assistance fit into the First Concurrent Budget Resolution?
A. In the Community Development section of that Resolution, the Congress has set aside $2.1 billion in outlays for public works and other antirecession assistance to State and local governments.
Combined outlays for FY 1976 of H.R. 5247 would be a maximum of $2.1 billion, and then only if Title I (public works) and Title II (countercyclical) were in effect for a full year.
Q. How much does countercyclical assistance cost?
A. The authorization level for countercyclical assistance varies with changes in the national unemployment rate. When that rate hits 6%, the initial authorization level is $500 million. For every subsequent increase of 0.5% in the national unemployment rate, the authorization level would rise by $250 million.
Thus with national unemployment at 7%, the authorization would be $1 billion, at 9%, $2 billion.
Q. Would countercyclical assistance be inflationary?
A. No, as the economy heats up, the countercyclical program will phase itself out, so it will not have a lingering impact after recession has ended.
Q. How are the allocations under countercyclical assistance determined?
A. Countercyclical assistance funds are allocated on the basis of a formula using two factors: (1) unemployment, as the measure of the severity of recession; and (2) taxes raised by a particular jurisdiction, as a measure of the level of services provided by that jurisdiction.
Only those jurisdictions with unemployment of at least 6% over one calendar quarter would actually receive their formula allocation. Allocations for those jurisdictions with less than 6% unemployment would be turned back to the Treasury, for use in the contingency fund.
The formula is designed to get the most help to those places that have been the hardest hit. It does this very well. Expressing each jurisdiction's allocation as a percentage of its taxes, the resulting percentages correlate very closely with variations in unemployment rates from place to place.
Q. How are the funds distributed?
A. One-third of the total "pot" is set aside for State governments. The remaining two-thirds goes to local governments, in two categories.
The first category is the "Identifiable" local governments — those for which the Manpower Administration maintains monthly unemployment data. These governments are the prime sponsors and program agents under the CETA program. They number approximately 1,500 in all, and are figured directly into the formula.
The second category is "Balance of States". For each State, an allocation is determined for non-identifiable governments as if they were one government. This Balance of State allocation is to be distributed among the component governments using the best possible unemployment data available.