April 7, 1975
Page 9080
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
BY Mr. MUSKIE (for himself and Mr. HUMPHREY)
S. 1359. A bill to coordinate State and local government budget-related actions with Federal Government efforts to stimulate economic recovery by establishing a system of emergency support grants to State and local governments. Referred to the Committee on Government Operations.
INTERGOVERNMENTAL COUNTERCYCLICAL ASSISTANCE ACT OF 1975
Mr. MUSKIE. Mr. President, today I am introducing with Senator HUMPHREY legislation which I believe will provide much-needed balance to the efforts of this Congress to restore our country to economic health.
Thus far, both the debate we have had and the action we have taken in the Congress to deal with recession have focused on the long-accepted remedy of pumping more money back into the private sector – through tax rebates to individuals, investment incentives to business, and public service jobs to absorb some of the unemployed.
The public sector, on the other hand, has largely been ignored in economic policy considerations to date. And yet, States and local governments not only comprise a major segment of our economy, but also are among the hardest hit victims of today's inflation-recession squeeze.
State and local governments have been fighting the battle against inflation for some time. These governments have been especially hard hit because of the labor-intensive nature of the goods and services they must purchase.
Today, while the costs to State and local governments continue to rise, the deepening recession is adding new burdens to already overstrained budgets. The general economic slowdown is beginning to take a toll on revenues which – because of high unemployment and the standstill in new construction – are not rising as rapidly as anticipated. Rising unemployment is placing new demands on social services while the demand for basic local services – such as police and fire protection – is not diminished.
Earlier this winter, the Subcommittee on Intergovernmental Relations – which I chair – held hearings to try and determine just how bad the fiscal situation of State and local governments really is. The news was almost uniformly bad.
Severe budgetary pressures resulting from the combined impact of inflation and recession are forcing local governments across the country to take drastic steps. Newark, with one of the highest property tax rates in the country, has had to raise that rate two times within the past year, along with laying off hundreds of city employees.
In New York City, revenues for the last 6 months of 1974 fell $150 million short of estimates, while inflation added $280 million to the costs of running the city. To make up for the shortfall, Mayor Beame has had to raise city real estate and sales taxes and lay off city employees possibly numbering in the thousands.
Cleveland has had to lay off several hundred city employees, and has now reduced garbage collection to twice a month. In Wilmington, Del., and Baltimore, job freezes have been in effect for some time, and the latter is still anticipating a substantial deficit for the next fiscal year. In Detroit, the mayor has just announced that as many as 25 percent of the city's employees may be laid off to balance next year's budget, where a deficit of between $65 to $85 million is now projected.
The results of a telephone survey conducted by the National League of Cities and submitted to the subcommittee indicate that the problem is not limited to those large cities which have perennial fiscal troubles. Of the 67 cities surveyed by the League, 42 responded that either tax increases or service cutbacks will be necessary to survive their fiscal squeeze. Thirty-six responded that they were being forced to defer or cancel planned capital improvements. And 43 reported that they anticipate revenues to fall short of original estimates because of the depressed economy. Cities where the fiscal squeeze is forcing such actions include Englewood, Calif., DeKalb, Ill., Auburn, Maine, and Binghamton, N.Y.
In my own State of Maine, a survey of local government officials conducted by my office revealed that over half of those communities contacted have already had to raise local taxes or else expect to do so very soon.
The cities and towns included in these two surveys range in size from quite small – in Maine – to a few cities the size of Pittsburgh. Primarily they are medium size. Not included are the giant urban centers that we usually associate with chronic and severe fiscal problems.
At the State level, the fiscal squeeze is not as critical, although there is reason to believe that the States have not yet felt the full impact of recession. Even so, a number of States are perilously close to severe fiscal problems, and a few – most notably New York and Massachusetts – are already there.
Tax increases have been called for by the Governors of New York, New Jersey, Massachusetts, and Vermont. In Rhode Island and Connecticut, tax increases may be unavoidable to balance the State budget. An article from the March 17, New York Times which follows my remarks elaborates further on the current financial problems of several of the States.
These examples do not bode well for the success of our efforts here in the Congress to revive the economy.
While we at the Federal level are trying to speed up economic recovery by cutting taxes, State and local governments are delaying the impact of that effort by raising their own taxes. While we at the Federal level are trying to target the stimulus to those most in need, by using the progressive income tax structure, State and local governments are placing the burden back on those hardest hit by raising regressive local taxes. And while we at the Federal level are trying to create new jobs through public service employment, State and local governments are blunting that goal by cutting back on job-producing capital projects and by laying off regular employees, only to replace them with public service employees.
In the past, when the Federal Government accounted for a much larger share of the public sector than it does today, we may have been able to ignore such counterproductive actions at the State and local level. But sub-national government today is one of the fastest growing sectors of the economy, presently employing four times as many persons as the Federal Government, and spending almost two-thirds as much. It is increasingly clear, therefore, that the actions of this major force in the public sector can be ignored only to the detriment of the economic health of the Nation as a whole.
To remedy this situation, economic policymakers need to begin now to broaden their sights to include the public sector in any anti-recession program.
The legislation we are introducing today – the Intergovernmental Countercyclical Assistance of 1975 – is a substantial move in that direction.
The purpose of this legislation is simple. It is not to bail individual governments out of fiscal trouble – at times such as this, a little belt tightening by all governments is necessary. Rather, it is simply to provide help to State and local governments in bridging the gap caused by today's most unique economic circumstances – so that these governments will have not to rely so heavily upon budgetary tools which run counter to Federal efforts to revive the economy.
The logic behind the legislation is compelling. At a time when economic recovery is our highest national priority, it simply does not make sense to have governments at different levels working at cross purposes to one another.
And the arguments for the legislation are strong.
In the first place, the assistance provided under this proposal is very selectively targeted to reach only those States and localities hard hit by the recession. Assistance would be triggered initially when national unemployment reached a level of 6 percent. Further, no State or locality would receive assistance under the program unless its own unemployment rate had reached 6 percent.
Second, the program is not self-perpetuating. Unlike most Federal programs which cost more as time passes, countercyclical assistance would phase itself out as the economy grows healthier, and would terminate altogether when national unemployment drops below 6 percent.
Third, and perhaps most important, the impact of this program would be felt now, when it is most needed, not several years down the road.
Both the tax cut we have just enacted and the increased funding for public service employment which we are likely to appropriate have an impact which is more or less immediate.
The impact of a third type of antirecession measure now being considered – accelerated public works – may not be felt for some time. Consider the experience with an accelerated public works program adopted by Congress in 1962. Although the initial obligational authority was $850 million, only $62 million was spent in the first year. The bulk of the funds were not actually spent until 1964 and 1965, after the recession was over.
Countercyclical assistance does not suffer from that handicap.
The Senate Budget Committee will begin this week to consider items to be included in the first concurrent resolution which will be presented to the Senate later this spring.
The choices we will have to make will not be easy. The Budget Committee staff is presently projecting a deficit of $68 billion. without the addition of programs which appear to be well on their way to passage. Economists have suggested that the economy can sustain a deficit of between $70 to $75 billion. That does not leave us much room to work with.
Nevertheless, I believe that we should put countercyclical assistance high on our list of priorities.
The Federal Government will be spending many billions of dollars in the next several months to help revive the economy. Countercyclical assistance to State and local governments can do a great deal to help insure the success of that effort.
Mr. President, I ask unanimous consent that Senator HUMPHREY's remarks, the text of the legislation, a section-by-section analysis, a series of questions and answers about countercyclical assistance, and two newspaper articles about the local fiscal crisis be included in the
RECORD at this point.
The PRESIDING OFFICER. Without objection, it is so ordered.
STATEMENT BY SENATOR HUMPHREY
Mr. President, today I am introducing with my distinguished colleague, Senator Muskie, legislation which I believe is an essential component of any program designed to restore growth and prosperity to the nation's economy. The bill, the Intergovernmental Counter-Cyclical Assistance Act of 1976 provides counter-cyclical assistance to state and local governments.
America is presently experiencing its most severe economic crisis since World War II. Eight million Americans were out of work in March, a full 8.7 percent of the Nation's work force.
Gross National Product in constant dollars has declined for 4 successive quarters and will register another significant decline in the first quarter of 1975. $200 billion in output will be lost in 1975 alone.
Congress is moving swiftly to develop a program designed to reduce these unacceptably high rates of unemployment and restore economic growth. Taxes have been cut to provide much needed increases in purchasing power to individuals and incentives for investment to business. Public service jobs have been provided to employ a small percentage of the unemployed. Legislation that provides much needed assistance to housing and other sectors of the economy will soon be considered by both the House and the Senate. But these programs largely ignore an integral sector in our nation's economy, the state and local government sector.
The state and local government sector is already experiencing severe recession-induced fiscal problems. Last year, unprecedented inflation rates and soaring energy costs played havoc with the costs of operating state and local governments. This year, the recession has further increased expenditures, particularly for health and welfare, while seriously eroding the size of anticipated increases in revenues.
One need only look at the combined surplus or deficit of all state and local governments to get a clear picture of the rapid deterioration of their fiscal positions.
In 1972, the enactment of revenue sharing and a reasonably strong economy combined to produce a $4 billion surplus. In 1973, this surplus disappeared and the combined state and local sector was essentially in balance. In 1974, inflation-affected expenditure increases and recession- induced revenue shortfalls combined to produce a combined $7.5 billion deficit. Undoubtedly, the severity of the recession in 1975 will mean further increases in the demand for services and greater shortfalls in anticipated revenues, yielding even worse deficits.
But these aggregate figures mask even more severe problems in many of our nation's cities and a few of our nation's states. Hiring freezes or layoffs, cuts in services, delays in capital expenditures and increases in taxes are the rule, not the exception. Most of our nation's largest cities have already been forced to take one or more of these actions. Cleveland has been forced to lay off 1,100 workers and cut back services to levels that previously would have been unacceptable. Detroit has had to lay off 1,500 workers and to cut back essential services. And the problems of our largest metropolitan area, New York, have been reported in every paper around the country.
But these problems are not confined to our largest cities. Wilmington, Delaware has had to reduce its fire-fighting force by 11 percent while other city departments have experienced personnel cuts as high as 40 percent. An informal telephone survey conducted by the National League of Cities of 67 small and medium sized cities indicated far more widespread problems.
One-third of the cities had cut payrolls by laying off employees or through the combination of hiring freezes and attrition; over one-half had postponed essential capital expenditures; two- thirds found that their revenues had fallen short of anticipated levels; and almost half expected to enact some form of tax increase in 1975.
But many will argue that the Federal government should not be concerned about these serious fiscal problems. These people would suggest that a little belt-tightening is necessary and that state and local governments can always raise taxes or borrow the money so that they can weather the storm. However, this is certainly not the case.
In my opinion, there are significant national purposes that necessitate Federal government assistance to State and local governments during recessionary periods. First, state and local governments are a major sector of our economy, employing 12 million people and spending over $200 billion annually. No single sector of the economy can approach the level of employment found in the state and local government sector and no national economic policy can succeed in restoring economic prosperity without taking into account the needs of this sector. I would agree that a little belt-tightening by all governments is in order but strangulation of state and local governments is certainly not the answer.
Second, state and local governments' budgetary actions should be made consistent with Federal government efforts to reduce unemployment and restore economic growth. It is senseless economic policy to force state and local governments to increase taxes, thus depressing the economy, when the Federal government is simultaneously cutting taxes in an attempt to stimulate the economy. Such a policy undermines the stimulative impact of Federal income tax reductions and weakens the progressivity of the total tax system by substituting regressive or proportional state and local government taxes for progressive Federal income taxes. A similar inconsistency exists in the public employment program where the net number of new jobs created under existing public service employment programs is less than desired because state and local governments have been forced to lay off their permanent employees and replace them with Federally financed public service employees.
Finally, it is unrealistic and in most cases illegal, for state and local governments to undertake separate fiscal policies through deficit spending. State constitutions generally require state and local governments to operate with balanced budgets. However, even if these constitutional requirements did not exist, one could not realistically expect the thousands of state and local governments to coordinate their economic policies, thus formulating a consistent fiscal policy. Only the federal government has sufficient flexibility in economic policy to eliminate the fiscally perverse nature of state and local government budget actions and to make all government budget actions more consistent.
The legislation that we are introducing today, "the Intergovernmental Counter-Cyclical Assistance Act of 1975," would provide the means for rationalizing the budgetary actions of all levels of government into one coherent fiscal policy. It would provide enough assistance to prevent fiscally perverse state and local government budgetary actions, but not enough to prevent essential streamlining that all sectors of the economy undergo in a recession. In essence, it will prevent state and local governments from bearing a disproportionate share of the burden imposed upon the economy by recession.
As Chairman of the Joint Economic Committee I have heard considerable testimony regarding the components of an effective program to reduce unemployment and restore economic growth while maintaining price stability. Witness after witness testified to the need for immediate tax and expenditure stimulus to restore the economy to prosperity. However, all of the witnesses agreed that anti-recession programs should be designed to take effect immediately and to phase-out as the economy improves. This point of view was best expressed by Dr. Arthur Okun of the Brookings Institution who said "In general, I am pointing to two key tests of a valid anti-recession proposal: Does it really stimulate production and jobs during the recession? Does it stop stimulating the economy during the recovery as prosperity is regained?" The legislation that we offer today effectively meets both of these criteria.
First, the Intergovernmental Counter-Cyclical Assistance Act is clearly designed to phase-in as the recession deepens and to phase-out when the recession ends. Assistance is not made available unless the national unemployment rate exceeds 6 percent for one quarter. The amount of assistance that would be available is $2 billion at 6 percent unemployment, but is increased by $1 billion for each 1 percent increment in the national unemployment rate. Thus, when the national unemployment rate is between 8 and 9 percent, $4 billion would be available. The important feature is that no permanent spending program is created and no inflationary expenditures will be made after the recession has ended.
Second, the program is targeted to assist those governments hardest hit by the recession and thus the greatest propensity to take fiscally perverse budget actions. The formula weighs heavily the number of unemployed persons in a jurisdiction, concentrating assistance where the greatest recession induced revenue shortfalls and expenditure increases occur. In addition, no government will receive any assistance if its unemployment rate is below 6 percent. This insures that the program will phase-out on a government by government basis, as well as nationally.
Finally, this legislation insures that the stimulus be quickly injected into the economy, thus being spent almost immediately. The bill requires that all assistance distributed under this legislation must be spent within one year of receipt. This will insure that no funds that were allocated during the recession will be spent after it has ended.
Clearly, counter-cyclical assistance to state and local governments is an effective anti-recession program because: 1) the size of the program varies with the severity of the recession, phasing out at 6 percent unemployment; 2) the assistance is targeted toward those jurisdictions hardest hit by the recession and; 3) expenditures are made quickly so the stimulative impact is immediate.
It is these overwhelming advantages which have caused the Joint Economic Committee to frequently suggest counter-cyclical assistance to state and local governments as an essential component of its recovery program. The Committee recently recommended counter-cyclical grants in last year's emergency study, "Achieving Price Stability Through Economic Growth" and subsequently in reports to the House and Senate Budget Committees required by the Congressional Budget Act, and in the 1975 Annual Report of the Joint Economic Committee.
The specific recommendation in the 1975 Annual Report was that "A counter-cyclical revenue assistance grant to state and local government should be enacted to cushion the financial hardships presently experienced by these governments and to prevent these governments from adjusting revenues and expenditures in a manner which will hinder Federal government efforts to stimulate a recovery."
I urge my colleagues to support this recommendation and to consider counter-cyclical assistance to state and local governments as an integral component of any Federal strategy to reduce unemployment and restore economic growth.
S. 1359
Be it enacted by the Senate and House of Representatives of the United States of American in Congress assembled, That this Act may be cited as the "Intergovernmental Countercyclical Assistance Act of 1975."
FINDINGS OF FACT AND DECLARATION OF POLICY
SEC. 2. (a) Findings. The Congress finds–
(1) that State and local governments represent a significant segment of the national economy whose economic health is essential to national economic prosperity.
(2) that present national economic problems have imposed considerable hardships on State and local government budgets;
(3) that those governments, because of their own fiscal difficulties, are being forced to take budget-related actions which tend to undermine Federal government efforts to stimulate the economy;
(4) that efforts to stimulate the economy through reductions in Federal government tax obligations are weakened when State and local governments are forced to increase taxes;
(5) that the net effect of Federal government efforts to reduce unemployment through public service jobs is substantially limited if State and local governments use Federally financed public service employees to replace regular employees that they have been forced to lay off;
(6) that efforts to stimulate the construction industry and reduce unemployment are substantially undermined when State and local governments are forced to cancel or delay the construction of essential capital projects; and
(7) that efforts by the Federal government to stimulate the economic recovery will be substantially enhanced by a program of emergency Federal government assistance to State and local governments to help prevent those governments from taking budget-related actions which undermine the Federal government efforts to stimulate economic recovery.
(b) Policy.– Therefore, the Congress declares it to be the policy of the United States and the purpose of this Act to make State and local government budget-related actions more consistent with Federal government efforts to stimulate national economic recovery; to enhance the stimulative effect of a Federal government income tax reduction; and to enhance the job creation impact of Federal government public service employment programs.
FINANCIAL ASSISTANCE AUTHORIZED
SEC. 3. (a) Emergency Support Grants. The Secretary of the Treasury (hereafter in this Act referred to as the "Secretary") shall, in accordance with the provisions of this Act, make emergency support grants to States and to local governments to coordinate budget-related actions by such governments with Federal government efforts to stimulate economic recovery.
(b) Authorization of Appropriations. Subject to the provisions of subsection (c), for the purpose of making such grants, there are authorized to be appropriated for each of the 12 succeeding calendar quarters (beginning with the first calendar quarter beginning after the date of enactment of this Act)–
(1) $500,000,000 plus
(2) $250,000,000, multiplied by the number of whole percentage points by which the rate of seasonally adjusted national unemployment for the most recent calendar quarter which ended before the beginning of such calendar quarter exceeded 6 percent.
(c) Termination.– No amount is authorized to be appropriated under the provisions of subsection (b) for any calendar quarter if the rate of national unemployment during the most recent calendar quarter which ended 3 months before the beginning of such calendar quarter did not exceed 6 percent.
ALLOCATION
SEC. 4. (a) Reservations
(1) All States.– The Secretary shall reserve one-third of the amounts appropriated pursuant to the authorization under section 3 for each calendar quarter for the purpose of making emergency support grants to States under the provisions of subsection (b).
(2) All local governments.– The Secretary shall reserve two-thirds of such amounts for the purpose of making emergency support grants to local governments under the provisions of subsection (c).
(b) State allocation.
(1) In general.– The Secretary shall allocate from amounts reserved under subsection (a) (1) an amount for the purpose of making emergency support grants to each State equal to the total amount reserved under subsection (a) (1) for the calendar quarter multiplied by the applicable State percentage.
(2) Applicable State percentage.– For purposes of this subsection, the applicable State percentage is equal to the quotient resulting from the division of the sum of–
(A) the State unemployment percentage multiplied by 2, plus
(B) the State tax percentage by 3.
(3) Definitions.– For purposes of this subsection–
(A) the term "State" means each State of the United States and the District of Columbia;
(B) the State unemployment percentage is equal to the quotient resulting from the division of the number of unemployed persons in the State during the appropriate calendar quarter by the number of unemployed persons in the United States during such quarter, as determined by the Secretary of Labor and reported to the Secretary;
(C) the State tax percentage is equal to the quotient resulting from the division of the State tax amount by the sum of the State tax amounts of all the States;
(D) the term "State tax amount" means the amount of compulsory contributions exacted by the State for public purposes (other than employee and employer assessments and contributions to finance retirement and social insurance systems, and other than special assessments for capital outlay), as such contributions are determined for the most recent period for which such data are available from the Social and Economic Statistics Administration for general statistical purposes; and
(E) the term "unemployed persons" has the same definition given it under section 601 (a) (12) of the Comprehensive Employment and Training Act of 1973.
(c) Local Government Allocation.
(1) Identifiable local governments.
(A) Subject to the provisions of paragraph (3), the Secretary shall allocate from amounts reserved under subsection (a) (2) an amount for the purpose of making emergency support grants to each identifiable local government equal to the total amount reserved under such subsection for the calendar quarter multiplied by the identifiable local government percentage.
(B) For purposes of this paragraph, the identifiable local government percentage is equal to the quotient resulting from the division of the sum of–
(i) the identifiable local government unemployment percentage multiplied by 2, plus
(ii) the identifiable local government tax percentage by 3.
(C) For purposes of this paragraph
(i) the identifiable local government unemployment percentage is equal to the quotient resulting from the division of the number of unemployed persons within the jurisdiction of the identifiable local government during the appropriate calendar quarter by the number of unemployed persons in the United States during such quarter, as determined by the Secretary of Labor and reported to the Secretary;
(ii) the identifiable local government tax percentage is equal to the quotient resulting from the division of the local tax amount of the identifiable local government by the sum of the local tax amounts of all local governments;
(iii) the term "identifiable local government" means a unit of general local government for which the Secretary of Labor has made a determination concerning the rate of unemployment for purposes of title II of the Comprehensive Employment and Training Act of 1973 during the current or preceding fiscal year;
(iv) the term "local tax amount" means the amount of compulsory contributions exacted by the local government for public purposes (other than employee and employer assessments and contributions to finance retirement and social insurance systems, and other special assessments for capital outlay) as such contributions are determined for the most recent period for which such data are available from the Social and Economic Statistics Administration for general statistical purposes; and
(v) the term "unemployed persons" has the same definition given it under subsection (b) (3) (E).
(2) Other local governments.
(A) The Secretary shall allocate from the amounts remaining under the reservation pursuant to subsection (a) (2), after the application of paragraph (1) of this subsection, an amount to be paid to each State for the purpose of making emergency support grants to local governments, other than identifiable local governments, within the jurisdiction of such State, under the procedure described in subparagraph (B), which is equal to the sum of the amounts which would be allocated under paragraph (1) to all the local governments in the State, other than identifiable local governments, if such local governments were identifiable local governments.
(B) Each State shall allocate from the amount which it receives under this paragraph an amount for the purpose of making grants to each local government, other than an identifiable local government, within its jurisdiction determined under an allocation plan which meets the following requirements:
(i) the criteria for allocation of amounts among the local governments within the State shall be consistent with the allocation formula for identifiable local governments under paragraph (1) ;
(ii) the allocation criteria must be specified in the plan; and
(iii) the plan must be developed after consultation with appropriate officials of local governments within the State other than identifiable local governments.
(C) For purposes of this paragraph the term "identifiable local government" has the same definition given it under subsection (c) (1) (C).
(3) County Areas
(A) In general.– In the case of an identifiable local government unit which is a county area government, and which has one or more local government units within its jurisdiction which are not identifiable local governments, as defined in subsection (c) (1) (C), the Secretary shall allocate from amounts reserved under subsection (a) (2) an amount, for the purpose of making emergency support grants for each county area, in lieu of the amount allocated for such county area under paragraph (1), equal to the amount reserved under such subsection for the calendar quarter multiplied by the county area percentage.
(B) County area percentage. – For purposes of this paragraph, the county area percentage is equal to the quotient resulting from the division of the sum of–
(1) the county area unemployment percentage multiplied by 2, plus
(ii) the county area tax percentage by 3.
(C) County area government – local government distribution.
(i) The Secretary shall allocate from the amount allocated under subparagraph (A) an amount for the purpose of making emergency support grants to the county area government which bears the same ratio to the amount allocated under subparagraph (A) as the county area government tax amount bears to the county area tax amount.
(ii) The Secretary shall allocate the amount remaining of the amount allocated under subparagraph (A), after the application of clause (i) of this subparagraph, to be paid to each State for the purpose of making emergency support grants to each local government, other than identifiable local governments, within the jurisdiction of such county area government. Each State shall allocate from the amount which it receives under this clause an amount for the purpose of making grants to each local government, other than an identifiable local government, within the jurisdiction of such county area government determined under an allocation plan the criteria of which are identical to the criteria established by the State for purposes of subsection (c) (2).
(D) Definitions.– For the purposes of this paragraph–
(i) the county area unemployment percentage is equal to the quotient resulting from the division of–
(I) the number of unemployed persons within the county area, reduced by–
(II) the number of unemployed persons within the jurisdiction of identifiable local governments within the jurisdiction of such county area, during the appropriate calendar quarter by the number of unemployed persons in the United States during such quarter, as determined by the Secretary of Labor and reported to the Secretary;
(ii) the county area tax percentage is equal to the quotient resulting from the division of the county area tax amount by the sum of the local tax amounts of all local governments;
(iii) the term "identifiable local government" has the same definition given it under subsection (c) (1) (C);
(iv) the term "local tax amount" has the same definition given it under subsection (C) (1) (C);
(v) the term "county area tax amount" means the amount of compulsory contributions exacted by the county area government, plus–
(i) the amount of such contributions exacted by all local governments within the jurisdiction of such county are reduced by–
(ii) the amount of such contributions exacted by identifiable local governments within such jurisdiction, for public purposes (other than employee and employer assessments and contributions to finance retirement and social insurance systems, and other special assessments for capital outlay) as such contributions are determined for the most recent period for which such data are available by the Social and Economic Statistics Administration for general statistical purposes;
(vi) the term "unemployed persons" has the same definition given it under subsection (c) (1) (C); and
(vii) the County government tax amount means the amount of compulsory contributions exacted by the county government for public purposes (other than employee and employer assessments and contributions to finance retirement and social insurance systems, and other special assessment for capital outlay) as such contributions are determined for the most recent period for which such data are available by the Social and Economic Statistics Administration for general statistical purposes.
(E) Double counting prohibition.– Any unit of local government which receives a grant from a State under the provisions of this paragraph shall not be allocated an amount under paragraph (2). For purposes of making allocations under paragraph (2), the number of unemployed persons within the jurisdiction of any local government which receives an allocation under this paragraph shall not be taken into account.
(4) Double counting prohibition: For purposes of making an allocation under this subsection for a local government that has within its jurisdiction one or more local governments which receive an allocation under this subsection, the number of unemployed persons within the jurisdiction of such local governments and the local tax amount of such local governments shall not be taken into account.
CONTINGENCY FUND
SEC. 5. The Secretary shall reserve from the amounts appropriated pursuant to the authorization under section 3 for each calendar quarter an amount equal to the amount, if any, not paid to State or local governments by reason of section 11(c), but not in excess of an amount which is equal to 2½ percent multiplied by the total amount appropriated under the authorization in section 3 for such quarter, for the purpose of making additional emergency support grants to State or local governments which are in severe fiscal difficulty, as determined by the Secretary.
USES OF EMERGENCY SUPPORT GRANTS
SEC. 6. Each State and local government shall use emergency support grants made under this Act for the maintenance of basic services customarily provided to persons in that State or in the area under the jurisdiction of that local government, as the case may be. State and local governments may not use emergency support grants made under this Act for the acquisition of supplies and materials or for construction unless such supplies or construction are essential to maintain basic services.
APPLICATIONS
SEC. 7. (a) IN GENERAL.– Each State and identifiable local government unit may receive emergency support grants under sections 4 (b), (c) (1), (c) (2), (c) (3) (D) (1) and 5 only upon application to the Secretary, at such time, in such manner, and containing or accompanied by such information as the Secretary of the Treasury requires by rule. Each such application shall–
(1) include a State or local government program for the maintenance, to the extent practical, of levels of public employment and of basic services customarily provided to persons in that State or in the area under the jurisdiction of that local government which is consistent with the provisions of section 6;
(2) in the case of a State government, provide assurances that the State will not reduce the total amount of financial assistance, determined in dollars, which it provides to the local governments within its jurisdiction during the appropriate calendar quarter on an annualized basis below an amount which equals the amount of such assistance which it provided to such local governments during the 12-month period which ends on the last day of the calendar quarter immediately preceding enactment of this Act;
(3) provide that fiscal control and fund accounting procedures will be established as may be necessary to assure the proper disbursal of, and accounting for, Federal funds paid to the State or local government under this Act;
(4) provide that reasonable reports will be furnished in such form and containing such information as the Secretary of the Treasury may reasonably require to carry out the purposes of this Act and provide that the Secretary of the Treasury, on reasonable notice, shall have access to, and the right to examine any books, documents, papers, or records as he may reasonably require to verify such reports;
(5) provide that the requirements of section 8 will be complied with;
(6) provide that the requirements of section 9 will be complied with;
(7) provide that the requirements of section 10 will be complied with; and
(8) provide that any amount received as an emergency support grant under this Act shall be expended by the State or local government before the end of the twelve calendar month period which begins on the day after the day on which such State or local government receives such grant.
(b) Grants to States under section 4(c) (3) (D) (ii).– Each State may receive funds for payment to local government units under section 4(c) (3) (D) (ii) only upon application to the Secretary, at such time, in such manner, and containing or accompanied by such information as the Secretary may require by rule. Such application shall, to the extent practicable, conform to the requirements for applications filed under subsection (a).
(c) Approval.– The Secretary shall approve any application that meets the requirements of subsections (a) or (b) within 30 days after he receives such application, and shall not finally disapprove, in whole or in part, any application for an emergency support grant under this Act without first affording the State or local government reasonable notice and an opportunity for a hearing.
NONDISCRIMINATION
SEC. 8. (a) In General.– No person in the United States shall, on the grounds of race, color, national origin, or sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with funds made available under this Act.
(b) Authority of the Secretary.– Whenever the Secretary determines that a State government or unit of local government has failed to comply with subsection (a) or an applicable regulation, he shall, within 10 days, notify the Governor of the State (or, in the case of a unit of local government, the Governor of the State in which such unit is located, and the chief elected official of the unit) of the noncompliance. If within 30 days of the notification compliance is not achieved, the Secretary shall, within 10 days thereafter–
(1) exercise all the powers and functions provided by title VI of the Civil Rights Act of 1934 (42 U.S.C. 2000d);
(2) refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted; or
(3) take such other action as may be provided by law.
(c) Enforcement.– The Secretary shall have the full authority to withhold or suspend any grant under this Act, or otherwise exercise any authority contained in title VI of the Civil Rights Act of 1964, to assure compliance with the requirement of nondiscrimination in federally assisted programs sat forth in that title.
(d) Civil Actions:
(1) Any person adversely affected or aggrieved by any action of an official of a State or local government in violation of subsection (a) of this section, or in violation of rules prescribed by the Secretary to carry out the provisions of this section, may bring a civil action for relief on his own behalf, or on behalf of a class of persons similarly situated, against such official. Any such action may be brought in any district court of the. United States in which such person resides, or in which the claim arose, or in the United States District Court for the District of Columbia. The court may permit the Attorney General to intervene in such civil action if he certifies that the case is of general public importance. Upon application by the complainant, and in such circumstances as the court considers just, the court may appoint an attorney for such complainant and may authorize the commencement of the civil action without the payment of fees, costs, or security.
(2) In any action commenced pursuant to this section, the court may allow the prevailing party, other than the United States, a reasonable attorney's fee in addition to any other costs, and the United States shall be liable for such fees and costs as though it was a private person.
(3) In the case of an alleged act or practice prohibited by this section which occurs within the jurisdiction of a State or local government which has law prohibiting such act or practice and authorizing a State or local government authority to grant or seek relief from such practice, or to institute proceedings with respect thereto upon receiving notice thereof, no civil action may be brought under this paragraph (1) before the expiration of the 30-day period which begins on the day on which written notice of such alleged act or practice is received by the appropriate State or local authority.
LABOR STANDARDS
SEC. 9. All laborers and mechanics employed by contractors on all substantial repair or renovation construction projects assisted under this Act shall be paid wages at rates not less than those prevailing on similar projects in the locality as determined by the Secretary of Labor in accordance with the Davis-Bacon Act (40 U.S.C. 276a-276a-5). The Secretary of Labor shall have, with respect to the labor standards specified in this section, the authority and functions set forth in Reorganization Plan Numbered 14 of 1950 (15 C .F.R. 3176) and section 2 of the Act of June 13, 1934, as amended (40 U.S.C. 276c).
TAX INCREASES
SEC. 10. Each State and local government which receives a grant under the provisions of this Act shall report to the Secretary any increase or decrease in any tax which it imposes and substantial reductions in the number of individuals it employs or in services which such State or local government provides. Such report shall be made as soon as is practical and, in any case, not less than 30 days after the date on which the decision to impose such tax increase or decrease or reductions in employment or services is made public.
PAYMENTS
SEC. 11. (a) In General.– From the amount allocated for State and to each local government under section 4 or the amounts reserved under section 5, the Secretary of the Treasury shall pay to each State and to each local government which has an application approved under section 7, an amount equal to the amount allocated to such State or local government under Section 4.
(b) Apportionment.– Payments under this Act may be made in installments and in advance or by way of reimbursement, with necessary adjustments on account of overpayments or under payments.
(c) Termination.– No amount shall be paid to any State or local government under the provisions of this section for any calendar quarter if the rate of unemployment within the jurisdiction of such State or local governments during the most recent calendar quarter which ended three months before the beginning of such calendar quarter was less than 6.0 percent.
WITHHOLDING
SEC. 12. Whenever the Secretary of the Treasury, after affording reasonable notice and an opportunity for a hearing to any State or local government, finds that there has been a failure to comply substantially with any provision set forth in the application of that State or local government approved under section 7, the Secretary shall notify that State or local government that further payments will not be made under this Act until he is satisfied that there is no longer any such failure to comply. Until he is so satisfied, no further payments shall be made under this Act.
REPORTS
SEC. 13. The Secretary of the Treasury shall report to the Congress as soon as is practical after the end of each calendar quarter during which grants are made under the provisions of this Act. Such report shall include information on the amounts paid to each State and local government and a description of any action which the Secretary of the Treasury has taken under the provisions of section 12 during the previous calendar quarter. The Secretary of the Treasury shall report to Congress as soon as is practical after the end of each calendar year during which grants are made under the provisions of this Act. Such reports shall include detailed information on the amounts paid to State and local governments under the provisions of this Act, any actions which the Secretary of the Treasury has taken under the provisions of section 12, and an evaluation of the purposes to which amounts paid under this Act were put by State and local governments and the economic impact of such expenditures during the previous calendar year.
ADMINISTRATION
SEC. 14. (a) Rules– The Secretary of the Treasury is authorized to prescribe, after consultation with the Secretary of Labor, such rules as may be necessary for the purpose of carrying out his functions under this Act.
(b) Coordination.– In administering the provisions of this Act, the Secretary of the Treasury is authorized to use the services and facilities of any agency of the Federal Government and of any other public agency or institution in accordance with appropriate agreements, and to pay for such services either in advance or by way of reimbursement as may be agreed upon.
SECTION-BY-SECTION ANALYSIS OF THE INTERGOVERNMENTAL COUNTERCYCLICAL ASSISTANCE ACT
Section 1 provides that this legislation may be cited as "The Intergovernmental Countercyclical Act of 1975."
FINDINGS OF FACT AND DECLARATION OF POLICY
Section 2 sets out Congressional findings that State and local governments represent a significant segment of the national economy which is suffering from considerable hardships because of the current national economic problems; that those governments, because of their own fiscal difficulties, are being forced to take actions that undercut Federal efforts to stimulate the economy; that the impact of Federal tax cuts is weakened when State and local governments are forced to raise their taxes; that the net impact of Federal public employment programs is limited if State and local governments are forced to lay off their regular employees; that efforts to stimulate construction are undermined when State and local governments cancel or delay essential capital projects; and that Federal efforts to stimulate economic recovery will be substantially aided by a program of emergency Federal assistance to State and local governments.
Section 2 further declares it to be the national policy to make State and local government budget-related actions more consistent with Federal efforts to stimulate national economic recovery; to enhance the stimulative effect of Federal income tax reductions; and to enhance the job creation impact of Federal employment programs.
FINANCIAL ASSISTANCE AUTHORIZED
Section 3(a) authorizes the Secretary of the Treasury to make emergency support grants to State and local governments to carry out the purposes of this legislation.
Section 3(b) authorizes for each of 12 succeeding calendar quarters (beginning with the first calendar quarter after the date of enactment of this Act) $500 million when the national seasonally adjusted unemployment rate reaches 6% plus an additional $250 million for each whole percentage point over 6% of the national seasonally adjusted unemployment rate for the preceding calendar quarter. On an annual basis, that means that $2 billion would be authorized when the national seasonally adjusted unemployment rate reaches 6º% and an additional $1 billion would be authorized for each additional whole percentage point the national seasonally adjusted unemployment rate rises above 6%.
Section 3(c) provides that no funds would be authorized for any calendar quarter during which the national unemployment rate was under 6%.
ALLOCATION
Section 4(a) provides that the Secretary of the Treasury shall reserve one-third of the authorized funds for distribution to State governments and two-thirds of the authorized funds for distribution to local governments.
Section 4(b) provides for the allocation of assistance 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. For the purposes of this section, the District of Columbia is included as a State.
Section 4(c) provides for allocation to local governments. Allocations to local governments would be made according to the same formula as for State governments – two parts unemployment and one part adjusted taxes raised. The adjusted tax data used in this section is the same as is compiled by the Bureau of Census for use in the Revenue Sharing Act.
Paragraph (1) of Section 4(c) provides for allocations to "identifiable local governments" – those local governments for which the Secretary of Labor has unemployment data for the purposes of Title II of the Comprehensive Employment and Training Act of 1973. Each identifiable local government will be allocated a share under the formula.
Paragraph (2) of Section 4(c) provides for assistance to "other local governments" – those local governments for which the Secretary of Labor does not have unemployment data. In the case of other local governments, unemployment and tax data for all local governments in each State that are not identifiable local governments will be considered in aggregate as if all those governments combined were one identifiable local government. In other words, in addition to the identifiable local governments in each State, an entry will be made into the formula for the balance of the local governments in each State. Distribution of assistance to specific local governments from the amount allocated for other local governments for each State will be made by the State government in accordance with a plan approved by the Secretary of Treasury. That plan will require that, to the extent practicable, the State follow the criteria for distribution of funds set out in the formula for identifiable local governments.
Paragraph (3) of Section 4(c) allocates funds in those cases where an identifiable local government unit is a county area and has one or more local government units within it which are not identifiable local governments. In those cases, the allocation will be made to the county area taking into account unemployment in the county area (reduced by the amount of unemployment in any identifiable local government within the county area) and taxes raised by all local governments located within the county area (again reduced by taxes raised by any identifiable local governments located within the county area). The county government's share of the county area allocation would be equal to the percentage the taxes raised by the county government area of taxes raised by all local governments, including the county government, located within the county area (reduced by taxes raised by identifiable local governments within the county area).
The amount of the county area allocation that does not go to the county government will be returned to the State for allocation to other local governments within the State.
Sections 4(c)(3)(E) and 4(c)(4) prohibit double counting of the data in the workings of the formula.
CONTINGENCY FUND
Section 5 provides that the Secretary of the Treasury reserve from the amounts authorized for this program for each calendar quarter an amount equal to that not paid under Section 4(d) but in no case more than 2½ percent of the total authorized amount for the purpose of making additional emergency support grants to State and local governments which are in severe fiscal difficulty, as determined by the Secretary.
USE OF EMERGENCY SUPPORT GRANTS
Section 6 provides that grants under this program should be used for the maintenance of basic services ordinarily provided by the State and local governments and that State and local governments shall not use funds received under this Act for the acquisition of supplies and materials or for construction unless essential to maintain basic services.
APPLICATIONS
Section 7(a) establishes an application procedure for State governments and identifiable local governments eligible to receive assistance under the Act. Section 7(a) further requires that each application shall:
(1) include the applying government's program for maintenance, to the extent practicable, of levels of employment and basic services that it customarily provides;
(2) in the case of a State government, provide assurance that it will not reduce the total amount of financial assistance, in dollars; which it provides to local governments within its boundaries;
(3) provide that necessary fiscal control and fund accounting procedures will be established to assure proper disbursal, and accounting for, Federal funds paid to State and local governments under this Act;
(4) provide that reasonable reports will be furnished as the Secretary of Treasury may require and that the Secretary of Treasury has access to the records he needs to verify those reports;
(5) provide that the nondiscrimination requirements of this legislation will be complied with;
(6) provide that the labor standards and wage requirements of this Act be complied with;
(7) provide that the Act's requirements that governments receiving assistance under this Act report tax changes and changes in levels of services provided to the Secretary of the Treasury be complied with;
(8) provide that all funds received under this Act be expended by the recipient State or local government within 12 months of the time it is received.
Section 7(b) provides that applications for payment of funds to other local governments shall be filed by the States.
Section 7(c) provides that the Secretary of the Treasury shall approve any application which meets the requirements of this Act within 30 days and shall not finally disapprove, in whole or in part, any application for an emergency support grant under this Act without first affording the State or local government reasonable notice and an opportunity for a hearing.
NONDISCRIMINATION
Section 8 provides that no person shall, on the grounds of race, color, national origin, or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with employment made available under this Act. This section further provides that 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 is specifically authorized to defer payment to the discriminating jurisdiction unless compliance is achieved.
LABOR STANDARDS
Section 9 provides that laborers and mechanics employed by contractors on all substantial repair renovation construction programs funded under this Act 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.
TAX INCREASES
Section 10 provides that each State or local government which receives a grant under this Act shall report to the Secretary, within 30 days, any increase or decrease in any tax which it imposes and substantial reductions in employment levels or in services which that jurisdiction provides.
PAYMENTS
Section 11 gives the Secretary of the Treasury the authority to make payments from the funds authorized under this Act. It further allows payments to be made in installments in advance or by way of reimbursement, with necessary adjustments on account of overpayments and under payments.
Section 11(c) provides that no fund be paid to any State or local government under this Act for any calendar quarter if the unemployment rate within that jurisdiction during the previous calendar quarter was less than 6 %. .
WITHHOLDING
Section 12 requires the Secretary of Treasury to withhold funds from any jurisdiction which fails to comply substantially with any of the provisions set forth in the application it submitted for funds under this Act. Funds will continue to be withheld until the Secretary of Treasury is satisfied that compliance has been achieved.
REPORTS
Section 13 requires the Secretary of the Treasury to report as soon as practical after the end of each calendar quarter on the implementation of the program.
ADMINISTRATION
Section 14 authorizes the Secretary of the Treasury, after consultation with the Secretary of Labor, to prescribe such rules as may be necessary to carry out the Act. That section also provides the Secretary of the Treasury with the authority to use services and facilities of any agency of the Federal government and of any other public agency or institution in accordance with appropriate agreements and to pay for such services either in advance or by way of reimbursement as may be agreed upon.
QUESTIONS AND ANSWERS ABOUT THE INTERGOVERNMENTAL COUNTERCYCLICAL ASSISTANCE ACT
Q. What is countercyclical assistance?
A. Countercyclical assistance is targeted emergency financial assistance to hard pressed State and local governments caught in a fiscal squeeze brought on by national economic hard times. It is called countercyclical because the amount of the assistance would increase each time the national unemployment rate increases a full percentage point and decrease each time the national unemployment rate decreases a full percentage point. No funds would be authorized if the national unemployment rate is less than 6 percent. In other words, the assistance under this program increases as the national economy deteriorates and decreases as the national economy improves.
Q. Isn't this a lot like revenue sharing?
A. No. Revenue sharing provides Federal assistance to virtually every unit of government in the country.
Countercyclical assistance, on the other hand, is very selectively targeted to only those states and local governments hardest hit by recession. The formula used in this countercyclical proposal has two factors : (1) unemployment, as a measure of the severity of the recession in a given state or locality; and (2) adjusted taxes, as a measure of the level of services provided by that government.
Whereas revenue sharing money presently goes to over 38,000 units of government, only 50 states and the District of Columbia and approximately 2,000 units of local government would participate initially in the countercyclical assistance program, even fewer would actually receive Federal funds under the program, since some of these localities do not have unemployment as high as 6 percent.
Furthermore, countercyclical aid would not entail a permanent high level of funding, as does revenue sharing. As the economy revives, the countercyclical assistance program would phase itself out, terminating completely when national unemployment sank below 6 percent.
Countercyclical assistance is an anti-recession program only.
Q. Why is countercyclical assistance needed?
A. Countercyclical assistance is needed in order to maximize the impact of present Federal efforts to revive the economy.
During times of recession, such as at the present time, Federal economic policy is aimed at stimulating greater economic activity. This policy usually includes measures such as tax cuts – to stimulate greater spending in the private sector – and public service jobs programs – to help absorb some of the unemployed.
While the Federal government is pursuing such anti-recession measures, however, State and local governments are often forced to take budgetary actions which run counter to the Federal effort.
At the present time, State and local governments throughout the country – caught in a squeeze between rising costs of inflation and recession – are either having to raise taxes, lay off employees, cancel job-producing capital improvement projects, or cut back on services, in order to balance their budgets. Such actions run counter to the stimulus the Federal government is trying to provide.
Countercyclical assistance is needed not for the purpose of bailing these governments out of fiscal trouble. During a recession, belt-tightening by all governments is necessary.
Countercyclical assistance is needed to reduce the reliance of State and local governments upon budgetary actions which run counter to national economic policy.
Countercyclical assistance is also needed to preserve the progressive nature of other anti- recession measures which are aimed at providing the most relief to those hardest hit by recession – the unemployed, and those at the lower end of the income ladder.
When State and local governments are forced to raise regressive local taxes – such as the property and sales taxes – the progressive impact of Federal income tax cuts is blunted. When the Federal government tries to create new jobs for the unemployed, only to have State and local governments lay off workers and cancel capital projects, those unemployed realize little if any benefit.
Finally, countercyclical assistance is needed because national economic policy to date has focused solely on the private sector. And yet State and local governments comprise one of the largest and fastest growing segments of the economy, currently employing four times as many persons as the Federal government, and spending collectively almost two-thirds as much. The actions they take have a substantial impact on economic trends. The improved health of individual State and local governments is essential to the improved health of the nation as a whole.
Q. How much will it cost?
A. As introduced, the legislation would authorize an initial appropriation of $2 billion when national unemployment reaches 6%. For every point that unemployment rises above 6%, the legislation would authorize an additional appropriation of $1 billion.
Therefore, at the current unemployment level of 8.7%, the bill would authorize appropriations of $4 billion.
Q. Who will be eligible?
A. Any state or the District of Columbia will be eligible for assistance if it has an unemployment rate of 6 % or greater for a period of one calendar quarter.
At the local level, those units of general purpose government for which the Secretary of Labor has certified unemployment statistics, as compiled for the CETA program, will be eligible for assistance if such units of government have an unemployment rate of 6% or greater for a period of one calendar quarter. Funds for local jurisdictions for which the Secretary of Labor does not have certified unemployment statistics will also be made available to each state.
Further, a unit of local government with unemployment over 6 %n within a state with unemployment less than 6% will be eligible for assistance.
Q. On what basis will funds be distributed to state and local governments?
A. Initially, the funds appropriated under the Act will be divided into two pots, with one-third allocated for the states' share, and two-thirds allocated for local governments' share.
Within each of these pots, the individual allocations for a state or unit of local government will be calculated on the basis of a formula using unemployment and adjusted taxes as factors.
The unemployment factor is used as the best measure of the recession. Adjusted taxes are used as a measure of the level of services provided by a particular government. Both factors are already available – unemployment figures from the CETA program, and adjusted taxes from the Office of Revenue Sharing.
The pot appropriated for each calendar quarter will be divided up into individual portions for all eligible governments, using the formula noted above. Only those units of government with unemployment 6 % or more would actually receive their allocations, however. Those allocations not actually distributed (to governments with unemployment below 6 %) would be returned to the Treasury.
In the case of local units of government for which unemployment information is not available, all such governments within a state will be combined into a balance of state category and, for the purposes of the formula, treated as if they constituted one individual government. Funds allocated to the balance of state category would be administered by the State government and would be distributed, to the extent practicable, in accordance with the formula used for individual units of local government.
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, not down the road a year or so. State and local governments – given the fiscal situation of many of them – are likely to spend the money soon after receiving it. Furthermore, the legislation requires that any funds received be spent within a year of receipt.
Second, countercyclical assistance is targeted to only those units of government hard hit by the recession. Unlike under revenue sharing, where virtually every unit of government in the country receives Federal funds – or over 38,000 governments – under countercyclical assistance only those governments where unemployment is at least 6% will receive assistance.
Third, countercyclical assistance will phase itself out once the economy is healthier, and national unemployment drops below 6%. Thus the stimulus will be provided only when it is needed.
And fourth, countercyclical assistance can strengthen the stimulative effect of other Federal anti-recession efforts by reducing the need for State or local governments to increase taxes or reduce employment. When the Federal government enacts a tax cut to stimulate the economy, only to have State and local governments increase their taxes, the stimulative effect of the Federal action is delayed. When the Federal government tries to create new jobs through public service employment, only to have State and local governments lay off their own employees and replace them with public service employees, or cut back on job-producing capital improvements, then again the impact of the Federal effort is delayed. Countercyclical assistance can help insure a greater degree of coordination between actions of all levels of government.
Q. Congress is considering a number of different types of anti-recession measures. Why should we add another one to the list, particularly in view of the size of the deficit?
A. Congress has enacted a tax cut, and will probably enact an increased public service jobs program. Countercyclical assistance is a natural complement to these two initiatives.
The impact of the tax cut will be lessened if State and local governments around the country raise their own taxes as they are starting to do now. Countercyclical assistance will help keep this from happening.
The impact of jobs programs will be lessened if State and local governments lay off their own employees and replace them with public service employees, paid for by the Federal government as has happened in a number of places. Countercyclical assistance will help keep this from happening as well.
Both the tax cut and job programs are aimed at the private sector. We must recognize that sub-national government is now so substantial that it should not be neglected in national economic policy. Countercyclical assistance is a stimulus for the public sector that complements what we are trying to accomplish for the private sector.
Countercyclical assistance will provide a faster stimulus than one of the other major anti- recession measures Congress is likely to be considering shortly – that is, accelerated public works.
Whereas the impact of countercyclical assistance is felt more or less immediately, that of public works projects is not felt until much further down the road. A major public works program enacted in the early 1960s demonstrates this point. Although the program was enacted in September, 1962, the bulk of the funds appropriated were not spent until 1964 and 1965, long after the recession was over. In the first year of the program, only about 8 % of the funds were actually put into the economy.
Q. Isn't this another new spending program that will have a long-term inflationary impact?
A. No. If high unemployment is a measure of recession – and this is generally agreed upon – then countercyclical assistance will diminish as the recession fades and will eventually terminate altogether. Countercyclical assistance is not like revenue sharing – it is not a permanent entitlement program.
Public works programs are far more likely to have a long-term inflationary impact. If past experience is our guide, little money will be spent right away, and large amounts of money spent for public works several years from now may only contribute to inflation then.
LOCALITIES SEEKING TAX RISES AS UNITED STATES IS PREPARING CUTS
(By William E. Farrell)
Soaring inflation, shrinking Federal aid and growing demands for public services are forcing many of the nation's city and suburban officials to seek increases in local taxes at a time when the Federal Government is deciding to cut taxes.
In some areas public employees are being laid off to avoid the need for even higher levies than those now being sought. In others, officials are trimming public services in an effort to avoid layoffs and politically unpopular rises in the property tax.
The financial pinch on the local level means that, for many individuals, the benefits of Federal tax reduction could be quickly nullified by increases in local taxes. Mayors and other local officials, meanwhile, feel that the cities are being asked to fight inflation through layoffs and higher taxes at precisely the moment when Washington is moving to stimulate the economy.
In some areas the requests for new taxes are being accompanied by layoffs of public employees to avoid the necessity of even higher levies than those now being sought. In other areas, including some with mayoral or other local elections this year, attempts to avert tax increases are being made primarily by cutbacks in services.
The financial pinch has prompted many local officials, particularly mayors, to criticize Federal plans for individual tax reductions at a time when they are faced with severe budget gaps.
This criticism was summed up recently by Mayor Beame of New York in testimony in public hearings held in Washington by the United States Senate's Budget Committee.
"Local governments are being forced to raise taxes, while the Federal budget proposes to stimulate the private sector through tax reductions," Mr. Beame said. "Local governments are laying off city workers, while the Federal budget proposes to create new jobs for other unemployed; local officials are forced into unnecessary confrontations with local union leaders, while Federal officials are implementing and proposing to expand a national public employment program; and local governments are being forced to cut public service in health and welfare, in a penny-wise, pound-foolish attempt to reduce the Federal budget."
Like a growing number of other city chief executives, Mr. Beame is seeking additional local revenues to meet increasing city expenses. He has already proposed an increase in the New York City real estate tax from $7.35 to $8.09 per $100 of assessed valuation, and the other day he told city councilmen that there would be a need for other new taxes.
67 CITIES SURVEYED
Recently the National League of Cities, a Washington-based organization that represents some 15,000 municipalities, surveyed 67 cities ranging from large urban centers such as Buffalo to smaller ones such as Racine, Wis.
According to the survey, 86 cities reported that the economy was forcing postponements of planned capital improvements, 21 cities reported municipal job layoffs or job freezes and 43 cities said they anticipated revenue short falls this year.
A total of 28 cities reported that taxes would have to be increased, and 23 of them said that municipal services would be reduced, according to the survey. Nine cities reported that they would have to raise taxes and reduce city services. They were Anchorage, Englewood, Calif.; East St. Louis, Ill.; Auburn, Me.; Newark, Binghampton, N.Y.; Buffalo, Syracuse and Cleveland.
A spot check by The New York Times also indicates that a growing number of local officials are reluctantly seeking new levies to make ends meet.
In Newark, for instance, Mayor Kenneth A. Gibson recently announced that 348 city workers, including 112 policemen and 66 firemen had been sent dismissal notices and that the property tax rate would increase from $8.60 to $10.15 per $100 assessed valuation to meet an expected budget deficit of some $35-million.
In Camden, N.J., Mayor Angelo J. Errichetti said that he planned to try to fend off any property tax increase to meet his $3.3 million budget, but that to do so meant he would have to dismiss 130 city employees.
Property tax increases are usually a distasteful route for politicians to take to raise revenues because they fear that homeowners' resentment will show itself at the polls.
In some areas, property assessments have increased while the property tax rate remains constant. In Dade County, Fla., for example, the total value of assessed property rose in 1974 from $14.1 billion to $18.8 billion. County officials argued that because assessments had risen so much, cities within the county should have reduced their tax rates to offset the increased assessments and prevent tax bills from rising.
City officials in Dade County say they were holding the line and blamed county assessors for increasing the tax bills. While the two levels of officials bicker over who is to blame, the home-owner pays more.
For instance, a house in Dade County assessed in 1973 at a tax rate of $30 per $1,000 of assessed valuation meant a tax bill of $600. At the 1974 assessment rate, the house's value increased to $26,000 and the same $30 tax rate meant a bill of $780.
According to Keith W. Teague, chairman of the property tax committee of the National Tax Association-Tax Institute of America, the trend in local property tax bills is upward, although there is some shift to other taxes such as sales and use taxes.
Mr. Teague said that property tax increases have tended to level off, but that property assessments have increased. By whatever name, it still means a bigger bite out of the homeowner's bankroll.
In Philadelphia, over the veto of Mayor Frank Rizzo, a small property tax increase of 30 cents per $100 went into effect on Jan. 1, while in nearby Lower Merlon Township, a prestigious "Main Line" community, there was also a modest increase in property levies.
According to the spot check, tax delinquencies were running about average although there were isolated reports of an increasing delinquency rate that some fiscal officials attributed to the state of the economy.
The heads of large cities – such as Cleveland where 1,100 city workers have been laid off and where garbage collection has been reduced to once every two weeks – are seeking new Federal money to stem the layoffs and the tax increases.
A draft of proposed legislation to aid non-Federal governments are circulating in the Senate Subcommittee on Intergovernmental Relations headed by Senator Edmund S. Muskie, Democrat of Maine.
The aim of the proposal, according to a staff memorandum, "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 memorandum noted that such a program would be distinct from Federal revenue sharing – an ongoing program that provides 39,000 units of state and local government with $30.2 billion in funds over a five-year period ending in 1976 with a minimum of restrictions on their use.
The draft, unlike the revenue sharing program would "provide assistance to a limited number of jurisdictions – those with the most serious economic problems."
It would provide the sum of $3-billion when the national unemployment rate averaged 7 percent for three consecutive months. Each additional one point increase in the unemployment rate would call for an additional $1-billion in Federal aid, and as unemployment decreased, so would the Federal funding level.
A program of this type is being pushed by the League of Cities and the United States Conference of Mayors, both strong Washington lobbying groups.
"It makes no sense for the Federal government to cut taxes in order to stimulate the economy while at the same time pursuing policies to force our cities to increase taxes," said Milwaukee's Mayor, Henry W. Maier. Mr. Maier urged prompt passage of a one-year "emergency recovery" measure for local governments totaling $5-billion.