March 26, 1975
8738
REVENUE SHARING AND CIVIL RIGHTS
Mr. MUSKIE. Mr. President, as Congress begins to focus on the question of renewing general revenue sharing, a major issue that will face us is the program's impact on civil rights.
An excellent article, "The Impact of Revenue Sharing on Minorities and the Poor," by Morton H. Sklar, Revenue Sharing Project Director of the Center for National Policy Review, appeared in the winter 1975 issue of the Harvard Civil Rights-Civil Liberties Law Review. Because of the timeliness and pertinence of this article, I ask unanimous consent that it be printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
THE IMPACT OF REVENUE SHARING ON MINORITIES AND THE POOR
(By Morton H. Sklar)
Revenue sharing is the principal legacy of the Nixon Administration's concept of "new federalism." It represents a major change in the manner in which federal financial assistance is provided to state and local governments. In contrast to federal categorical grant programs, under which money is earmarked for specific projects or purposes and local government recipients must conform to substantial federal requirements, revenue sharing entails lump sum payments with few federal strings. This approach was devised, according to former President Nixon, "s[o] that we can make available nearly five and a half billion dollars to our States and localities to use not for what a federal bureaucrat may want, but for what their own people in those communities want. The decision should be theirs."
In the two years since the first revenue sharing program became law, there have been indications that this new approach to allocating federal aid has had an adverse impact on minorities and the poor. Exploration of the effects of revenue sharing on these and other segments of the population is particularly important in light of President Ford's frequently renewed commitments to support the continuation of revenue sharing and the stated intention of the federal government to apply revenue sharing concepts more broadly to domestic federal aid programs through special revenue sharing and a variety of other "new federalism" policies.
After an introductory section which briefly describes the general structure of revenue sharing, Section II of this article reviews evidence that indicates that the distribution of revenue sharing funds discriminates against the poor because the basic formula and its limiting provisions do not treat poorer communities in a manner commensurate with their needs. These inequities are compounded by the government's use, for the purpose of determining the size of allocations, of data that include substantial undercounts of minority groups.
Section III analyzes mounting evidence that local governments are not providing an equitable share of revenue sharing funds to meet the urgent needs of the poor, a failing aggravated by the proportional reductions and impoundments of other federal grant programs serving the poor.
Section III also examines the implications of the fact that a very substantial portion of the new funds has been given to state and local governments with a long history of discrimination against minorities and women in their employment practices.
Finally, Section IV discusses the victimization of the poor and minorities by the absence of meaningful federal performance requirements and the ineffectiveness of the Office of Revenue Sharing in policing the few standards that have been imposed.
I. A BRIEF DESCRIPTION OF GENERAL AND SPECIAL REVENUE SHARING
A. General revenue sharing
General Revenue Sharing, administered by the Treasury Department's Office of Revenue Sharing (ORS), has been in effect since October, 1972. It was intended to be new federal funding not tied to or replacing any existing program or project, with state and local recipient governments having the power to allocate the funds with minimal federal oversight of their spending choices . Nevertheless, several qualifications have been imposed on the recipient governments' freedom in utilizing the funds.
1. Permissible expense categories. County and municipal allocations for operation expenses must be in one of eight broad priority areas: public safety, environmental protection, transportation, health, recreation, libraries, social services for the poor and the elderly, and financial administration. Capital improvements can be supported in any program area.. State government expenses are not restricted to these priority areas.
2. Nondiscrimination. Funds may not be used in a way that provides unequal service to minorities and women.
3. Regular budget procedures. A jurisdiction must follow the same procedures in selecting projects to receive revenue sharing funds as it uses for all other budget decisions.
4. Publication and documentation. Reports of planned and actual use of revenue sharing funds, which must be submitted annually to ORS, must also be published in a newspaper of general circulation, with backup documentation made available to the public at a location designated in the forms.
5. State maintenance of effort. State governments are to be penalized in their allocations to the same extent that they reduce their own contributions to county and municipal governments. Exceptions are made for states taking over from their subsidiary governments responsibility for an area of expenditures or conferring on those govenments new taxing authority.
6. Wage rates. Locally prevailing wage rates must be paid to public employees and to employees of private contractors working on funded projects
One final requirement, of somewhat lesser concern to minorities and the poor, prohibits the use of general revenue sharing funds as a basis of obtaining additional federal funds through matching grant programs.
Enforcement of these limited federal requirements is primarily dependent on the interest and vigilance of the Department of the Treasury. The program was designed to impose as little administrative responsibility on the recipient governments as possible. According to former President Nixon, "States and cities will not have to worry about filing complicated plans, filling out endless forms, meeting lots of administrative regulations, or submitting to all sorts of bureaucratic controls. When we say no strings we mean no strings."
The General Revenue Sharing Program disburses five to six billion dollars annually, totalling $30.2 billion over the five-year period ending December, 1976. This compares to annual distributions of about $50 billion under federal categorical grants-in-aid to states and localities.
The allotments normally amount to about five to eight percent of a county's or local jurisdiction's annual budget and to about two to three percent of a state's budget. Although these percentages are small, they are important because, in theory at least, they represent new money not previously available and not committed by law or past practice to specific types of ongoing expenditures.
Allotments are made directly by the Oflioe of Revenue Sharing to approximately 38,000 recipient governments at the state, county, and local levels on the basis of mathematical formulas that weigh comparative population size, tax effort, personal income tax collections, per capita income, and degree of urbanization. The only administrative action a government need take to receive funds is the filing of three documents: a certification of compliance with the statute's requirements and two very simple annual report forms, one submitted prior to the fiscal year, reporting the general program areas where a government plans to spend the funds, and the other submitted at the close of the fiscal year, reporting how funds were actually spent.
B. Special revenue sharing
Like general revenue sharing, special revenue sharing involves the distribution of fedoral dollars to state and local governments by statutory formula, with considerable flexibility provided recipients in selecting projects and activities to fund. Under statutes such as the Comprehensive Employment and Training Act of 1973 (CETA) and Housing and Community Development Act of 1974, funds are earmarked for broad program areas but the states have considerable discretion as to what specific projects are funded. Special revenue sharing, however, is not primarily "new" money but instead represents consolidations of previous grants-in-aid directed to particular program areas.
From the point of view of minorities and the poor, there are three important differences between general and special revenue sharing. First, special revenue sharing distribution formulas weigh more heavily the comparative levels of need in jurisdictions in determining the size of allocations. Second, they identify generally the kind of services and activities that can be provided. Third, the special revenue sharing statutes specifically require the administering federal agency to approve spending plans and to monitor performance. In sum, while paring down some of the federal responsibilities connected with categorical grants, special revenue sharing programs allow local officials much less discretion in handling funds than they enjoy in general revenue sharing.
1. Manpower
Manpower special revenue sharing seeks to improve job training and employment opportunities for economically disadvantaged, unemployed, and underemployed persons. Consolidated under the new program are approximately two billion dollars a year previously authorized under the Manpower Development Training Act of 1962, the Economic Opportunity Act of 1964, and the Emergency Employment Act of 1971. Other sections of CETA preserve in modified form particular employment-related programs such as Public Service Employment, Job Corps, and special programs to aid Indians, migrant or seasonal workers, and other special groups.
2. Housing
Housing and community development special revenue sharing consolidates many Department of Housing and Urban Development programs, including those funding urban renewal and model cities programs and those promoting the development of water and sewer facilities, neighborhood facilities, open space, and rehabilitation loans. More than eight billion dollars is authorized for consolidated lump sum payments over a three-year period to city and major suburban county governments, and about $2.5 billion of this money is earmarked for fiscal 1975.
The new housing statute also extends, in a revised form incorporating some revenue sharing features, certain of the old categorical housing programs not covered by the basic grants. For example, the low-rent public housing program reappears as part of a broadened subsidized housing measure that gives the local governing body authority to review and disapprove all applications submitted to HUD. While HUD can override the local government's opinion, it is clear that along with the added responsibilities given local officials under the community development block grants, this new local review power will move substantial authority over housing assistance from the federal government to locally elected officials.
C. Import of the revenue sharing approach
Although the revenue sharing approach has been approved by Congress for only general revenue sharing and the two special revenue sharing statutes, additional special revenue sharing programs have been proposed for a number of areas including rural development, law enforcement, economic development, education and transportation. Further, the approved versions of both law enforcement assistance and, to a lesser extent, the education program, incorporate a distributive technique very similar to revenue sharing. The Office of Management and Budget is now undertaking a comprehensive review of federal domestic assistance programs in an effort to identify those in which a revenue approach could be most effectively applied. Moreover, in the last two years, several experimental administrative actions have expanded the discretion that local officials can exercise over federal grant programs. Thus, there will be more programs utilizing techniques of revenue sharing and more federal dollars flowing through such programs.
In fact, the dollar impact of the various programs already in operation is great. The amount of federal aid currently distributed by means of revenue sharing-type approaches totals approximately $12.5 billion annually, or about 25 percent of total federal grants-in-aid to state and local governments. These figures belie the popular impression that the new federalism is making only meager headway in transforming federal assistance procedures. They also suggest the need to take a closer look at the human impact of the movement towards greater local discretion, reduced federal responsibility, and increased consolidation of grants.
II. BIASES AGAINST MINORITIES AND THE POOR IN THE GENERAL REVENUE SHARING ALLOCATION FORMULA
A. The way the formula works
The statute adopted by Congress allocates general revenue sharing payments among the states according to one of two formulas. Under the bill as initially passed by the Senate, shares increased with population and tax effort and decreased with per capita income; under the House bill, the same was true, but shares also increased with urbanized population and adjusted income tax collections. In conference a compromise was reached, and now both formulas are used, each state receiving an allocation according to the formula yielding the larger payment to that state. In practice, the allotments of 31 states are based on the Senate formula, while those of 19 states and the District of Columbia are based on the House version.
One-third of each state's allocation is retained by the state government, and two-thirds are distributed to county and municipal governments. Each county and municipal government receives an allocation determined by formulas, which, like the national formulas, vary shares according to the populations, tax efforts, and per capita incomes of recipient jurisdictions.
B. Distribution inequities
Although the formula attempts to give some preference to areas with lower per capita incomes, there are indications that several aspects of the allocation scheme tend to defeat this purpose, with the result that urban areas and areas with higher concentrations of poor and minorities may not be receiving allotments proportionate to their needs. A number of factors can be identified that may be causing these inequities in allocation.
1. The 145 percent ceiling. Allocations are limited by a provision that no jurisdiction may receive per capita more than 145 percent of the state's average per capita revenue sharing entitlement. This limit operates mainly against urban and poorer areas, whose lower per capita income figures would yield higher allotments if there were no ceiling. It has been estimated that by fiscal year 1975 this funding limit will reduce the amount of shared revenue that will be received in 1.9 percent of all townships and 3.6 percent of all other local jurisdictions.
In the 1972 allocations, the 145 percent limit affected the largest cities in 13 states and 34 cities with populations over 500,000, including Boston, St. Louis, Philadelphia, Baltimore, Detroit, Newark, and Louisville. The inequity of this funding constraint is further accentuated by the fact that some states are affected to a greater extent than others. In eight states, over one-third of the localities receiving funds, other than townships, will be affected by the 145 percent limit; in thirteen states fewer than one percent of the localities reach that limit.
2. The twenty percent floor. The provision that no jurisdiction will receive less, on a per capita basis, than twenty percent of the states' average per capita entitlement results in larger amounts going to smaller jurisdictions, where service needs may be less pressing and government operations less extensive. The limit is most often applied in the case of township areas. Over 41 percent of the nation's 16,915 townships, and 18.6 percent of all other local areas will receive additional funds in fiscal year 1975 because of the twenty percent lower limit. Without the twenty percent minimum, these payments would be going to larger, more active governmental units.
3. Functional differences in governments. The present formula treats all governmental units of the same type alike, despite the fact that not all of them exercise the same function. Depending on the state, major social services may he provided by municipal governments, counties, or the state itself. The revenue sharing formula accounts for such differences through the tax effort factor insofar as jurisdictions that exercise more functions collect more revenues. But the tax effort factor is only partially successful in reflecting functional differences since it is not keyed directly to levels of government service. Thus, funds may be targeted to inactive, inefficient governments because of their relatively high tax rates.
4. Differences in resources available to governments. Closely related to variations in the types of services performed by governments is the fact that jurisdictions differ markedly in resources available to finance their activities. The present formula does not distinguish between governments already having adequate resources to meet their needs and those with serious fiscal deficits. This disparity is becoming apparent in several states that have recently achieved substantial budget surpluses.
5. Statewide statistical base. An additional inequity may arise from the fact that allocations to local governments are derived from allocations to their state's government, which are in turn based on statewide average per capita income. States with higher than average per capital incomes get fewer revenue sharing dollars per capita. Poor jurisdictions located in these richer states may thus have available to them fewer dollars than have jurisdictions with identical needs that are located in poorer states. Although this disadvantage may be offset by the fact that poor local governments in generally richer states may receive a larger share of the state-wide allocation, the operation of this countervailing factor is limited by the 145 percent ceiling. The extent to which this inequity actually exists has yet to be studied.
C. Proposals for formula revisions
Several legislative changes in the allocation formula are being proposed to eliminate some of the anti-poor and anti-urban biases in the program. The most common suggestion is to remove the 145 percent ceiling so that jurisdictions with very high levels of need would not face a funding maximum. Another improvement would be to determine each locality's share directly, by comparison of its formula characteristics with those of comparable jurisdictions throughout the country, rather than by tying shares to the state's funds. The shares of state governments could still be calculated in the present manner, from state-wide figures, if separate funds were established for state and local distributions.
Another possible formula revision would be to eliminate payments to smaller, nonfunctioning governmental units. Excluded under such a scheme could be jurisdictions with populations less than a designated minimum or jurisdictions that perform negligible government functions. Funds
would thus be freed for distribution to jurisdictions that provide greater services. This result could also be achieved by incorporating in the formula an index of a community's needs and its ability to meet them that is more sophisticated than the present per capita income factor. The formulas used in special revenue sharing programs are examples of distribution methods that more effectively match allocations to the need levels of recipient jurisdictions. Several research projects attempting to identify and correlate such formula elements for general revenue sharing are now underway or planned.
An even more fundamental formula change has been proposed by Congressman Wilbur Mills. Recognizing that states generally do not have fiscal deficits as severe as those of local governments Mills' bill would eliminate state shares entirely and pass additional funds directly through to the localities.
It remains to be seen whether any of these changes will be politically acceptable. In the short run at least, it is likely that the less sophisticated but more functional revisions, such as the elimination of the 145 percent limit, will have greater chances for success with Congress.
D. Minority undercounts
The problem of inequitable allocations is compounded by the difficulty of assembling the data necessary for use in the formulas. Of the numerous data-related problems the one most directly affecting the interests of minorities is that of minority undercounting by the Bureau of the Census
Population is a component of both the three-factor and the five-factor formulas for determining state level allocations. It is also an element of the formulas used for distributing funds at the county and local levels. In cities and counties that have reached the 145 percent ceiling it is the single most important factor in determining the total allocation since the amount of their allocations is fixed on a per capita basis. They lose a full per capita share for every person not counted in the census figures.
The Census Bureau estimates that undercounts tend to occur more frequently among poorly educated and minority group males than among other segments of the population. For example, the undercount of black males, estimated to be nearly ten percent, is more than four times that of white males. These figures suggest that jurisdictions with high minority concentrations are losing revenue sharing funds to other localities.
A Stanford Research Institute study seemed to confirm this hypothesis by finding that the eight states which are the biggest revenue sharing losers due to census inaccuracies tend to have black populations substantially above the national average. It also found that the three cities it studied whose allocations were at the 145 percent ceiling suffered substantial adverse effects from undercounts. The study concluded, "In terms of the revenue sharing formula, the census data are biased against those communities where low income and minority people congregate."
One city has taken legal action in an effort to free its revenue sharing grants from the effects of census undercounts. Several public interest groups and the city of Newark, New Jersey, petitioned ORS in November 1973 for corrections in the population data used to compute Newark's revenue sharing allotments. Newark claimed that a minority undercount of 7.7 percent resulted in a $425,000 loss in the city's allocation. Although the Act and regulations quite clearly give the Secretary of the Treasury the authority to use alternative data sources, including
estimates, he refused to do so, claiming that accurate determination of undercounts could not be made without resurveys by the Census Bureau. In April, 1974, Newark filed suit against the Treasury Department, seeking an order requiring ORS to adjust its population data to take account of census inaccuracies.
There seems to be little justification for ORS's continued refusal to compensate for undercounts. The additional resources necessary to make these adjustments are minimal, and the results of the Stanford study demonstrate that reasonably accurate corrections of undercounts could be made for many jurisdictions using already available data.
III. PROBLEMS IN THE WAY REVENUE SHARING FUNDS ARE USED
A. Federal program cutbacks
General revenue sharing was billed as "new money" coming to state and local governments in addition to existing federal grant commitments. However, the introduction of the program was accompanied by numerous impoundments and cutbacks in major federal social programs that had aided the poor. A total of $1.6 billion was impounded in the first quarter of calendar 1974 alone, while only $1.5 million in general revenue sharing was disbursed during the same period. The disparity caused many complaints about the inadequacy of revenue sharing.
Although many of the major cutbacks during fiscal 1974 have since been significantly curtailed or otherwise redressed through litigation or congressional action, the spending reductions have had a permanent impact. Many community projects and agencies were eliminated or their activities and staffs were permanently reduced because of budget cuts necessitated by impoundments.
Moreover, it is not at all clear that the restored categorical grants together with the new special revenue sharing payments will match the amounts lost through reduced funding levels and eliminated programs. Special revenue sharing grants are significantly smaller than the amounts jurisdictions received under the categorical grant programs they replaced. Furthermore, special revenue sharing payments are being disbursed to a far larger number of jurisdictions than were the funds of the programs they replaced, and many grants cover larger geographic areas than the core city, high-poverty communities that were the prime targets of the old categorical grants.
Thus, smaller amounts of money are being disbursed to a larger number of recipients. All of these factors have contributed to the close association of the general and special revenue sharing programs with local reductions in projects and services that have particular importance to minorities and the poor.
B. Local spending priorities
As previously noted, localities are restricted in the uses to which they can put their revenue sharing funds. This section will examine whether localities are allocating a reasonable amount of these funds to programs of direct benefit to minorities and the poor.
Each jurisdiction expecting to receive revenue sharing funds must annually report its planned uses of revenue sharing funds and, after receiving the funds, the uses to which the funds were actually put. An analysis of the reports of local and state jurisdictions through June 30, 1973, shows definite trends in fund use. Municipalities reported spending 44 percent of their revenue sharing funds on public safety, 15 percent on public transportation, and 13 percent on environmental protection. The figures drop to five percent for health and one percent for social services for the poor and the aged. For counties, the leading expenditures were 25 percent for public transportation, 23 percent for public safety, and 15 percent for general capital expenses.
County spending dropped to 12 percent for public health and two percent for social services for the poor and the aged. Townships spent about one third of their funds on public safety and another third on public transportation; they spent only four percent for health and one percent for social services. Perhaps most surprising, all jurisdictions reported that large amounts of funds remained unexpended at the end of the reporting period.
State governments exhibited markedly different spending characteristics. They reported spending 65 percent of their funds on education, almost entirely for operating expenses. Social services received six percent, public transportation five percent, health three percent, and public safety two per cent. Spending pattern variations between states and localities may be accounted for in part by the facts that police and fire protection are traditionally local and not statewide services; that the Act permits expenditures for educational operating expenses by states but not by localities; and that the Act has no priority expense category requirements at the state level.
Several cautions must be observed in interpreting the planned and actual use report figures. First, the percentages reflect only the funds expended as of June 30, 1973. Still unexpended at that time were 57.5 percent of the funds distributed and a different spending pattern may emerge as the program becomes more established. Second, to those trying to analyze whether funds are being used to help minorities and the poor, the categories can be misleading. Projects listed under the social services heading are not the only ones having relevance to poverty and minority needs. For example, a transportation listing can disguise an expenditure for improvements on roads in a poor area or a transit subsidy program for the elderly. A public safety category can include building code enforcement. Third, and most important, the figures reflect only the reported uses of funds by localities. Reported uses represent only the direct application of funds and not their ultimate impact. A local decision to apply revenue sharing funds to police salaries may "free up" local funds that can then be shifted to any other budget expense item. The reported use of the revenue sharing funds would be their officially designated direct application, but their ultimate effect would be to permit new expenditures in another area. This ability to shift funds is referred to as the transferability or fungibility of budget dollars.
In light of these problems in interpreting early spending reports, it is difficult to substantiate the claim that local officials give low priority to programs benefitting minorities and the poor. Such a conclusion, however, is being tested by a number of public interest, poverty, and civil rights groups that have organized efforts to monitor the effects of revenue sharing in several localities over a two-year period that started in October, 1973. Local surveys are being carried out at each site by resident community organizations affiliated with the project's sponsors. Each monitoring group conducts an average of thirty interviews with local elected officials, department heads, and community and media representatives, and each group does a detailed comparison of total budget outlays of the jurisdiction for the current and several preceding fiscal years.
These local analyses have produced several new findings. One conclusion is that the primary effects of the first general revenue sharing payments were to reduce or prevent increases in local property taxes; to reduce the backlog of projected capital investment; to support or balance the general budget and to pay for salary increases. On the specific issue of the poverty and minority
share of benefits, the monitors confirmed the suggestion of the officially reported statistics that these expenditures represented small percentages of the total budget. However, in some sites, previously unreported expenditures related to the needs of the poor were uncovered. Conversely, project monitors, in several jurisdictions reported that revenue sharing funds earmarked for social services in the planning stage had not actually been spent for poverty-related purposes.
Preliminary findings indicate that, when given discretion in the allocation of federal funds through general revenue sharing, most localities will not choose to continue present federally supported commitments to the poor. In part for this reason, the special revenue sharing statutes have had to establish requirements for "targeting" services to these groups. General revenue sharing may need similar requirements to assure more equitable local expenditures. One possibility is to define the permissible expense categories listed in the statute more narrowly, with one or more targeted specifically to poverty needs. Maximum expenditures in each category could be stipulated to produce a broader mix of projects. Circumvention of these requirements through budget fungibility could be curbed by a maintenance-of-effort provision. These solutions are somewhat at odds with the general revenue sharing concept of maximizing local discretion. Consequently, any effort to add such limitations faces an uphill battle in Congress. However, that battle may have to be waged, for present local spending priorities indicate that it is highly unlikely that local officials will use program funds for the needs of the poor without strong federal guidance.
IV. PROBLEMS OF COMPLIANCE WITH FEDERAL REQUIREMENTS
A. Discrimination against minorities and women
Discrimination in the operation of local programs and projects receiving revenue sharing funds is prohibited by statute and ORS regulations. The equal opportunity standards are generally identical with those established by Title VI of the Civil Rights Act of 1964 for all other programs and activities funded in whole or part with federal assistance. The only major differences between the revenue sharing nondiscrimination standard and that applied under Title VI are that the former precludes discrimination based on sex and provides broad coverage of employment bias while the latter does not.
Eight specific types of discrimination in programs fully or partially funded by revenue sharing are explicitly prohibited by the regulations: outright denial of service or benefit, provision of different service, segregated facilities, exclusionary site selection; restricting the "enjoyment of any advantage or privilege," separate admission or eligibility standards, admission or eligibility standards which have the "effect" of discrimination, and denial of employment. The two most common forms of discrimination encountered to date have been the denial of public employment in facilities funded by revenue sharing and the unequal distribution of benefits and services in funded projects.
1. Public Employment Discrimination
Discrimination in employment by state and local governments is prohibited by the Equal Employment Opportunity Act of 1972. In addition, the general revenue sharing statute prohibits such discrimination where revenue sharing funds are involved. The entire workforce for each state or local government agency receiving funds is covered even if the funds are used to pay the salaries of only a small portion of the workforce or are spent entirely for non-salary purposes.
Many instances of public employment discrimination have come to light in state and local agencies receiving revenue sharing allocations. The Department of Justice has filed 27 lawsuits under the Equal Employment Opportunity Act, and more than 75 lawsuits have been filed by private parties. In addition, approximately 3000 public employment complaints are filed annually by citizens with the Equal Employment Opportunity Commission (EEOC). Many of these lawsuits and complaints involve police and fire departments, which receive large portions of revenue sharing funds in many localities. Nevertheless, the ORS has made very little effort to enforce the revenue sharing statute's nondiscrimination requirement in this area. An example of ORS reluctance to take enforcement action is its handling of a discrimination complaint against the Chicago Police Department. Through June 30, 1973,the Department received almost 75 percent of Chicago's revenue sharing funds. As early as August, 1972, an investigating team of
the Law Enforcement Assistance Administration found discriminatory employment within the Department, and in August, 1973, the Department of Justice filed suit against the city to halt such practices. In September, 1973, a black policeman filed a complain with ORS concerning the use of revenue sharing funds by the Police Department. ORS refused even to notify the Governor of Illinois of the complaint and request compliance although it was required to do so by the Act and regulations.
Complainants filed suit and won a court order requiring ORS to take these minimal steps. The court also held that ORS had statutory authority to defer funds pending an administrative hearing, but ORS disagreed. Rather than move for a cutoff of revenue sharing funds, ORS simply referred the complaint to the Department of Justice, which added a revenue sharing account to its pending civil suit. Even after that suit resulted in a finding of discrimination by the City of Chicago, ORS did not act to halt revenue sharing payments until compelled to do so by court order.
ORS's unwillingness to carry out its compliance responsibilities was further demonstrated in its handling of a similar complaint against the police and fire departments of Montclair, New Jersey; based on a finding of discrimination by New Jersey's civil rights agency. Although ORS indicated a willingness to accept the state's findings, it negotiated a settlement with Montclair which, according to the plaintiff's attorneys, fell far short of the affirmative action requirements stipulated by the state agency's order.
ORS has consistently relied on private citizens to bring potential violations to its attention. ORS has yet to conduct a self-generated civil rights compliance check on a recipient government, nor has it initiated administrative termination proceedings against even one noncomplying recipient. Only recently has ORS instituted an effort to provide guidance to state and local officials as to what the equal opportunity requirements mean and what types of voluntary corrective action can be taken to meet particular problems. This information is especially vital since local monitors have reported that their government officials do not even know that equal opportunity requirements apply to the general revenue sharing program.
2. Provision of Benefits
Discrimination in the provision of benefits arises primarily through the maintenance of dual levels of service within a particular program. For example, one section of a city might receive better public bus transportation than another. By early 1974, ORS had received at least nine complaints alleging discriminatory provision of services.
One such complaint was filed last April by black residents of Ouachita Parish, Louisiana. The parish had allocated $329,000 of its $1,600,000 in revenue sharing funds for blacktopping streets and roadways. It was alleged that these funds were used mostly to repave existing roadways in white neighborhoods rather than to pave the dirt and gravel roads which serve the overwhelming majority of black residents. Other large portions of the parish's revenue sharing money were allocated to the fire department and the library, both of which are located in white areas and were alleged to serve blacks inadequately.
Such discriminatory uses of funds are clearly invalid under the revenue sharing statute and regulations. In addition, they are unconstitutional under the doctrine of Hawkins v. Town of Shaw. The regulations may impose a stricter standard, however. They prohibit discrimination based not only on the constitutionally suspect categories of race, color, or national origin but on sex as well. Also, by detailing the impermissible discriminations more explicitly, the regulations simplify the problems of proof presented by the constitutional "rational relation" standard. However, neither the constitutional standard, the Act, nor the regulations appear to prohibit unequal provision of services between poor and wealthy sections of a community.
3. Strengthening Revenue Sharing's Civil Rights Requirements
Presently, the ultimate sanction ORS has available for civil rights enforcement is termination of revenue sharing payments. Invoking that sanction is a lengthy and complicated process, and the effort required could dim the ardor of even a zealous ORS. Given ORS's refusal to seek termination in at least two cases of proven discrimination, this sanction is unlikely ever to be applied as long as it remains a discretionary remedy. In addition, non-complying jurisdictions can take advantage of this cumbersome process to negotiate compromises that favor their interests and then to further delay fulfillment of even a limited compliance agreement. Even if the termination process is not thus short-circuited, the ultimate sanction is sufficiently far removed to generate compliance only after discrimination has persisted for a considerable period.
ORS should have the ability to bring pressure to bear on noncomplying jurisdictions before the end of the termination process. To this end, ORS's responsibility to impose temporary deferral of payments where there has been a showing of probable noncompliance should be incorporated in the regulations and statute. Such a showing could be the result of an ORS investigation pursuant to complaint; however, the institution of a civil action by the Justice Department or the institution of formal anti-discrimination proceedings by a state agency should also suffice. Payments would be withheld pending completion of the administrative hearing or judicial process. Furthermore, deferral should not be totally within ORS's discretion, for ORS could refuse either to investigate complaints or to find discrimination. Deferral should be mandatory 60 days after the institution of a Justice Department suit or state agency proceedings.
ORS has recently indicated its intention to publish amended regulations in January, 1975, to provide for deferral of revenue sharing payments pending administrative proceedings, but only after a final order finding discrimination has been entered by a court, a state human rights agency, or an administrative law judge. These proposed changes are inadequate, however. A probable cause showing of discrimination would not suffice to trigger deferral under them. In addition, they effectively allow ORS to abdicate its responsibility for civil rights enforcement to the Justice Department and the courts; any ORS hearing is mere surplusage after a judicial finding of discrimination. To be independently effective in civil rights enforcement, ORS needs a remedy that can be invoked much earlier in the process. Furthermore, ORS's discretion in invoking termination proceedings should be eliminated. Termination is clearly a remedy of last resort, for it would deprive all members of a community of the benefit of revenue sharing funds.
Nevertheless, the termination process provides ample opportunity for voluntary settlement, and the threat of termination must be made sufficiently real to ensure compliance.
There are also several administrative changes that would improve ORS enforcement capabilities. The civil rights compliance staff, which through fiscal year 1974 numbered only two persons and now numbers four to monitor more than 38,000 jurisdictions should be greatly increased. This staff should initiate systematic compliance investigations instead of merely responding to complaints received from the public. A simple step that ORS could take would be to examine the "EEO4" forms annually submitted to the EEOC by most state and local governments. These forms indicate the composition of the government's workforce by race, sex, and income in each major area of government operations. Private analyses of these forms have uncovered substantial and pervasive employment discrimination by state and local governments, particularly with respect to women. Such evidence can help locate instances where revenue sharing funds are supporting flagrantly discriminatory practices. ORS could also require by regulation that, in situations where noncompliance has occurred, future revenue sharing payments must be used to remedy and overcome the consequences of past discriminatory activity. ORS has already indicated in its regulations that recipients are authorized to take this type of affirmative action on their own.
All of the above discussed reforms would widen the scope of civil rights enforcement available under revenue sharing. However, their effect would be minimal unless ORS demonstrates a willingness to play a more active, self-initiating, compliance role. If ORS will not face up to the extensiveness of its civil rights responsibilities, it will have to be forced to act through statutory amendment or legal action
B. Public participation
Increasing the power of "people themselves [to] make their own decisions for their own communities" was one of the primary objectives of revenue sharing. These concerns found expression in the requirements that regular state and local budget procedures be followed in making revenue sharing disbursements and that copies of the planned and actual use reports be published in local newspapers.
Although there are some examples of revenue sharing stimulating increased citizen involvement, recent evidence suggests that, on the whole, this objective is not being fulfilled. Many officials have ignored the requirement that standard local budget procedures be followed and have allocated the funds by executive fiat, without public hearings or the involvement of local legislative bodies.
Lack of familiarity with the federal requirements may account for some of the oversight. However, the nature of revenue sharing itself may be chiefly responsible. Because the funds come to local officials unearmarked for specific purposes and separate from other revenues long a part of regular budget processes, they constitute a great source of power which many officials do not want diluted by citizen input. For example, in St. Louis County, the county board and its supervisor initially refused to hold public hearings because of community opposition to their proposed use of revenue sharing funds for luxury recreation facilities. They eventually acceded, but only after stipulating ground rules that carefully limited the extent of public participation.
The lack of greater public participation is due in part to weaknesses of the statute in this area. The requirement that a jurisdiction follow its normal budgetary process does not allow much citizen input if the normal budgetary process is not open to public scrutiny. For this reason, many community groups favor the idea of making mandatory some form of citizen input concerning the allocation of revenue sharing funds. The publication of planned and actual use reports is of uncertain value, too, since the regulations do not require any specificity in these documents and allow publication in sections of local newspapers where the documents do not attract the attention of the average reader.
ORS's failure to enforce the statute's limited citizen involvement incentives must also be cited. ORS has failed to take effective compliance action on violations of the publication and regular budget process requirements and has refrained from providing adequate guidance and support to local officials to encourage them to stimulate greater citizen involvement. The principal means of enforcement thus far has been withholding payments from jurisdictions that are foolish enough to indicate on their annual report forms that they have failed to publish copies of the reports as required.
Greater efforts are needed to move officials who prefer to make budget decisions in private or who would be receptive to citizen input but need some guidance as to the steps that can be taken to obtain it. Local groups have devised several strategies to maximize the input of community- based organizations.
1. Citizen Advisory Bodies
The most commonly attempted and successful approach to obtaining greater citizen involvement has been the formation, either by city officials or by community groups themselves, of citizen advisory bodies. One of the most successful of such efforts occurred in Kansas City, Missouri, where the city council held revenue sharing hearings in several neighborhoods and used the views presented by citizens and community groups as the basis for tentative plans for allocating revenue sharing funds. City officials were so pleased with the public support and approval of the process generated that they developed plans for using the same approach on a regular basis for the complete budget.
Generally, however, citizen involvement is not extensive, and what citizen activity there is often does not have significant impact. Many citizen groups are appointed quietly by city officials; they are often not representative of the community, and the community is generally unaware of their existence. There is also some indication that city officials sometimes use citizen advisory groups as a means of relieving themselves of the political costs involved in distributing a limited amount of money among many claimants.
2. Revenue Sharing Hearings
Special hearings dealing exclusively with how general revenue sharing funds should be used took place in a third of the monitoring project's sites. Generally these hearings had little impact on final decisions. Some were organized by city officials, either on their own initiative or as a result of requests from the public. Such hearings were successfully held, for example, in Baltimore, Maryland, and Kansas City, Missouri. In other communities, hearings were organized without official approval. A particularly successful effort of this type took place in Cambridge, Massachusetts, where the local OEO community action agency drew 500 people for a public planning session.
3. Pre-Hearing Input
In practice, most budget decisions are made long before public hearings are held on the proposals submitted by the mayor or city manager to the city council or governing body. In at least two localities, attempts were made to direct public attention to such earlier steps in the budget process as the drawing up of requests by department heads and the development of a consolidated budget proposal by the chief budget officer. The League of Women Voters in Westchester County, New York, sponsored a resolution, which was passed by the county legislature, requiring public hearings by each department head before his formal budget request is submitted. In New Orleans, Louisiana, the mayor encouraged department heads to solicit information and proposals from the public on community needs that could be incorporated into their budget requests.
4. Public Opinion Polls
Polls are perhaps the least productive of the various means that have been used to obtain citizen views
on revenue sharing allocation. One obvious limitation of the polling technique is that public views are
registered in only the most general subject area terms and therefore provide little concrete guidance on
specific project choices. Another limitation is that, from the point of view of
minorities and the poor, polls tend to exaggerate the importance of a few basic areas of general public
concern, such as tax relief and law enforcement, at the expense of projects responsive to poverty and
minority needs that do not have widespread public appeal.
5. Summary
A major caveat should be observed in judging the effect of citizen input on revenue sharing. It is not at all clear that such input should be relied on as a means likely to assure a more equitable distribution of funds to minorities and the poor. Since minority and poverty interests rarely coincide with those of the majority there would be no guarantee of equity to these groups from general citizen involvement procedures unless such procedures included assurances that minority interests would receive a reasonable share not only of representation but of ultimate benefits as well. For example, the CETA special revenue sharing program tries to formalize the involvement of the poor in project selection by making their memberships on planning councils mandatory.
But the special revenue sharing programs have the additional support of specific targeting requirements to help assure that their benefits will reach those most in need. It is doubtful at this point whether general revenue sharing can demonstrate a similar responsiveness even with substantial improvements in its citizen input.
C. Fungibility
Although local governments must allocate their general revenue sharing funds to certain very broad program categories, this requirement has been described as virtually meaningless by the General Accounting Office "since it can be easily circumvented through budgetary manipulations"! Thus, a locality may ostensibly allocate its revenue sharing funds according to the budget categories contained in the act, only to displace local money which ordinarily would have gone to finance the same activities. The displaced funds may then be used in a variety of ways which would not have been permissible in the expenditure of shared revenue.
While it is very difficult to determine hove much substitution is taking place at the local level, it appears that the aggregate amount is substantial. Government ukases indicate that over 44 percent of the local officials responsible for expending funds under the Act believe that revenue sharing will either permit a tax reduction or prevent a new tax increase and that almost one-third believe that it will result in avoiding or moderating increases in local government debt. Neither of these uses is permissible for localities under the Act. A Brookings Institution study has determined that 42.5 percent of the shared revenue distributed to local areas has been used in various ways to substitute for locally derived funds. Another analysis has found that 71 percent of large urban governments plan to devote their funds mainly to existing government operations.
To what extent such uses of funds were anticipated by Congress is unclear. One commentator has suggested that the priority categories were merely window dressing designed to differentiate Congressman Mills' proposals from the administration's. Another has concluded that the categories were simply "recommended guidelines." Nevertheless, the restrictions were included in the bill as passed, and there are indications from the floor debates that these categories were meant to be taken seriously.
At least one court has squarely held that revenue sharing monies may not be spent indirectly for impermissible ends by transferring other local funds. In Mathews v. Massell, the city of Atlanta was permanently enjoined from utilizing $4.5 million in revenue sharing funds, which was formally assigned to firemen's salaries, to provide rebates to firms and individuals having water accounts with the city. The Mayor and Board of Alderman had openly proclaimed their intention to spend the revenue sharing monies for that purpose. The court refused to permit "sham transactions" to override what it found to be genuine congressional intent to confine expenditures to the designated priority categories.
The implications of the Massell case for effective enforcement of the permissible expense requirement are probably limited, however. No doubt other jurisdictions will be more cautious in handling their budget accounts to disguise as direct a substitution as took place in Atlanta, and it is an enormously difficult task to track down all the individual income and expense factors in a budget to prove satisfactorily the actual or overall impact of a revenue sharing payment.
The fungibility issue has special connotations for civil rights compliance purposes, however, that make it important to seek ways in which to better regulate the manner in which revenue sharing funds are spent. Just as a jurisdiction can manipulate its budget entries to circumvent the permissible expense categories restriction, it can avoid the application of revenue sharing civil rights requirements by making certain that only programs with no equal opportunity problems are funded.
Two methods are available for dealing with the fungibility problem. Making the permissible expense categories and reporting requirements more specific and adding a maintenance-of-effort provision, requiring that a jurisdiction not reduce its own level of funding to any project receiving revenue sharing funds, would make it considerably more difficult for jurisdictions to divert local funds from budget items for which revenue sharing dollars are earmarked.
Alternatively, the expenditure categories could be dropped entirely, and revenue sharing could be treated as a general budget support program. Such an approach, however, would not be a solution to the fungibility problem; it would be a surrender to it. Elimination of the expense categories, including the social services item, would remove even the small bit of leverage that community groups now have for persuading their local officials that some attention to the needs of the poor is encouraged by the law. Thus, the expense categories should not be eliminated but rather should be strengthened with more specific targeting and reporting requirements so that more effective monitoring of fund uses becomes possible.
CONCLUSION
Too much of the discussion and analysis of revenue sharing has centered on the need to improve the administration of federal grants-in-aid and to obtain fiscal relief for state and local governments. While these are important and legitimate areas of concern, they tend to overshadow a matter of equal if not greater concern – namely, how revenue sharing is affecting people.
Although revenue sharing was designed in theory to produce more effective and publicly responsive uses of federal funds, there is mounting evidence that it has features that can result in substantial negative impacts on minorities, women, and the poor. The unwillingness of ORS to maintain a strong federal civil rights oversight responsibility under the program has made it more likely that discrimination in public employment and in the provision of services will take place.
At the same time, cutbacks in other types of federal aid have placed an added burden on revenue sharing, to provide a fair degree of support to public service programs that are especially relevant to minorities and the poor. For revenue sharing to be judged a success it is essential that this burden be met.
Another factor to be noted is that revenue sharing is just one of several new domestic assistance policies that the President and the Office of Management and Budget are planning to expand and develop under the broad heading of "new federalism." These policies point to further reductions in the responsibility of federal agencies and to a larger role for state and local elected officials in setting spending priorities. Before these proposed changes are put into effect, one problem must be faced: Can basic national priorities such as nondiscrimination and the provision of basic social services to the poor be effectively carried out when enforcement responsibilities are left primarily to state and local officials and when budget decisions affecting these matters are left to compete with other political and fiscal considerations at the local level in the absence of specific federal standards and oversight responsibility?
One hopeful sign that some federal officials may be more willing to address existing shortcomings in general revenue sharing was the Office of Management and Budget's initiation in September of 1974 of a joint review of the program with Treasury Department officials. Their objective was to devise a package of administrative and legislative reform measures that the President could present to Congress in early 1975. The joint OMB/Treasury review team was initially receptive to the comments and recommendations of numerous public interest and civil rights groups.
It considered several basic revisions in the program, including elimination of the 145 percent payment ceiling; elimination of the anti-matching provision; improvement of the reporting system to make the targeting of allocations more specific and more understandable to the public; and a strengthening of the civil rights provisions of the Act by specifically authorizing deferral of funds in many cases of suspected noncompliance and recovery of a 110 percent penalty for discriminatory use. The task force also briefly considered the possibility that general revenue sharing funding might be cut or payments deferred over a longer period of time consistent with other federal program cuts being recommended to deal with the problems of the economy.
But, perhaps with an eye to expected opposition to any major revisions from the President and Congress, the OMB/Treasury task force dropped or considerably watered down all of the proposals of importance to minorities and the poor by the time it submitted its final report to the President in late December. It will be a great disappointment if this first serious effort by the government to improve the revenue sharing program does not produce more significant results.
But it is noteworthy in any case that public criticism of general revenue sharing has become substantial enough to generate an internal assessment by the federal government. Further efforts along these lines by both government and private groups are to be encouraged in order that a satisfactory method of reconciling the interests of minorities and the poor with other objectives of revenue sharing and the new federalism can be developed. Until a more adequate solution to this problem is found, no further expansion of the new federalism initiative can be justified.