March 18, 1975
Page 7198
PROPOSAL FOR STATE AND LOCAL EMERGENCY ASSISTANCE
Mr. MUSKIE. Mr. President, both the House and Senate are currently in the process of considering legislation aimed at reviving a sick economy. The predominant vehicles at our command are tax cuts – to stimulate spending by both business and private citizens – and public jobs programs – to relieve soaring unemployment.
To date, our efforts have focused primarily on the private sector. Yet among the hardest hit victims of today's economic dislocation are State and local governments. Inflation has forced their costs to skyrocket, and made normal budget planning next to impossible. Deepening recession has slowed the growth of revenues, while placing new demands on certain social services. At the same time, the demand for basic local services such as police and fire protection is not diminished
To meet these budgetary pressures, State and local governments have few options. They can raise taxes, or reduce expenditures – most frequently through the deferral or cancellation of capital projects. And around the country they are doing both, with increasing frequency.
The problem this situation raises is an obvious one, but one which has thus far gone ignored at the Federal policymaking level. It is that while the Federal Government is trying to stimulate the economy through lower taxes and more jobs, the State and local sector is taking action which delays the impact of the Federal effort.
That, to me, just does not make sense.
One possible solution to this situation – and one which I find appealing – is a program of Federal assistance to State and local governments during times of economic hardship, for the purpose of reducing their reliance on budgetary actions which undermine national economic policy.
There are a number of arguments in favor of such a program of "countercyclical" assistance, and they have been succinctly and persuasively stated in a recent column by Neal Peirce in the Washington Post. I hope that my colleagues will give this column their attention and this proposal their serious consideration. It is logical and it is timely And most important, it can make a substantial contribution to the success of other actions we take to restore the Nation's economic health.
I ask unanimous consent that the article by Neal Peirce appearing in the March 15 edition of the Washington Post – entitled "The Haves and the Have Nots" – be printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
THE HAVES AND THE HAVE NOTS
(By Neal R. Peirce)
Unemployment in Massachusetts has soared past the 10 percent mark, forcing the state's new Democratic governor to consider severe spending cuts. He recently warned that the Bay State "faces the most serious budgetary crisis in memory – the largest current deficit of any state of the nation ($350 million) and an economic base that is stagnant and eroding."
Texas, by contrast, faces the not unpleasant task of dispensing a $1.4 billion surplus. The Texas economy is booming and unemployment, even in the face of the national recession, was 5.7 percent in January. In Houston, which has emerged as the oil capital of America, only 3.6 percent are out of work – compared to the latest reported national jobless rate of 8.2 percent.
ENERGY: COIN OF THE REALM
The Massachusetts-Texas contrast, to amazing degree, appears around the country this year. Energy has become the common coin of the realm. The states that have it – be it oil, gas, or coal – are doing well. Most of those who don't have energy are in the throes of high unemployment and fiscal chaos, both in state and local government.
The only exceptions are a handful of states with particularly well-diversified economies, and major producers of that increasingly scarce commodity – food.
Consider the robust fiscal health of governments in the energy-producing states. Louisiana last year was able to begin $100 million in capital construction out of current funds. Oklahoma expects an $80.8 million surplus that will make possible a cut in its income tax. Coal-producing West Virginia projects a $101 million surplus.
But New Jersey officials expect a $50 million deficit in this fiscal year and $600 million in the one to follow. Rhode Island's Governor Philip Noel (D) has bitten the fiscal bullet by asking his legislature to reduce the number of state employees by 8 percent and cut the pay of those remaining by 5 percent.
Cities like New York, Newark, and Cleveland are being forced to lay off substantial numbers of municipal workers.
But as the governors beg for a federal bail-out and mayors besiege Washington for "reparations payments" of billions of dollars, Congress and the Ford administration face a politically explosive problem: Will economic recovery programs be pinpointed to areas of real need?
Or will they be spread around, in typical pork-barrel style, so that the federal government enriches the coffers of already affluent governments while doing too little for those in the most dire need?
STORM SIGNALS UP
Storm signals are already up in the battle between the energy "haves" and "have-nots." The first chapter has been the fight over President Ford's oil import and tax program, with the "haves" generally in favor, the "have-nots" opposed.
The "have-nots" see the big energy producing states of the South and West as the "American Arabs," soaking up the wealth of other states and regions with inflated price levels set, in effect, by the OPEC countries.
The "haves" are fighting back. Sen. John Tower (R-Texas) is trying to organize a coalition of the 12 top oil and gas producing states to fight what he calls the "catastrophic" energy control proposals of New England and other Northeastern states. "The time to organize and fight them is now," according to Tower.
The second chapter of the battle now looms over economic recovery plans. Needy states and cities are arguing that it makes little sense for Washington to reduce taxes to stimulate the economy at the same time that federal aid to states and cities is cut, or at least fails to keep pace with inflation, causing local tax increases.
The $806 million tax increase package of Gov. Hugh Carey, (D-N.Y.) could, for instance, totally negate the federal tax reductions in the second largest state.
A second argument is that it's foolish for Washington to spend billions on slow-moving, inefficient emergency unemployment programs while the recession caused by Washington's fiscal mismanagement causes states and city governments to lay off workers.
"COUNTER-CYCLICAL" REMEDY
A specific remedy – which might well pit the energy-producing states against the energy- consuming ones again – is being hatched in the Senate Subcommittee on Intergovernmental Relations, chaired by Maine's Sen. Edmund S. Muskie (D).
The idea, which Muskie intends to push strongly if he can get broad support, is for a "counter- cyclical" aid program for state and local governments. In essence, it is deceptively simple: to channel federal aid of up to several billion dollars to state and local governments to make sure that they aren't forced to make tax increases and order layoffs that counteract national anti-recession policy.
The most interesting feature of the anti-cyclical plan is that it would not, like so many federal programs, be permanent. It would go into effect when, and only when, the national unemployment rate is more than 6 percent. When the jobless rate dipped below 6 percent, the program would cease immediately.
The intriguing part of the plan is that aid would go only to places suffering serious unemployment. The higher any state or city's, unemployment, the higher the aid would be. But when any locality's unemployment rate declined, so would its aid.
The counter-cyclical aid idea, originally proposed by Brookings Institution economists, is beginning to gain support among mayors and governors in hard-hit parts of the nation. They point out that the money could be channeled to local government rapidly, when they really need it.
This would be in contrast to slower-moving anti-recession programs, like public works, which often end up spending pennies while the economy is down and big dollars later on, when the real problem is inflation and an overheated economy.
BENEFIT TO PROGRESSIVE STATES
In addition, the program would give the most aid to cities and states that already have high taxes and spending programs, because part of the aid formula would be based on the normal spending level of each government.
In general, that would benefit progressive states like those of the Northeast, Wisconsin, Michigan, Minnesota, Washington, Oregon, and California.
By an accident of geography, however, most energy-producing states are normally more conservative and spend less on welfare and other social programs.
So even when the recession dipped deep enough to push the unemployment rate in the energy-producing states above 6 percent, their relative dollar assistance would be less. The same applies to the Great Plains states which are weathering the current recession much better than most of the nation.
So the counter-cyclical idea, however intelligent and well-conceived it may be, could end up on the rocks of Congressional stalemate as the "haves" and "have-nots" fight for maximum federal dollars.
No matter what the outcome, though, the debate could have an important side-effect. By raising the issue of gross disparities in state wealth caused by energy, it could well pose problems for the three-year old federal revenue sharing program.
Indeed, as the battle over extension of revenue sharing approaches, critics are already claiming that the program needs revamping. And in one sense, they are eminently right. Revenue sharing is the prime example of the federal government, itself mired in huge deficits, handing out money to each and every state and local government – with insufficient regard to need, or how much those governments are already doing for their people.