December 17, 1975
Page 41134
Mr. MUSKIE. Mr. President, I would like to express my strong support for the conference report on H.R. 5247.
This legislation is a major congressional response to our No. 1 national problem — unemployment. It is aimed at putting people back to work, both in the public and private sectors.
Most importantly, it will do this at a cost within the limits set by this Congress, under the new budget process. The second concurrent resolution provided for $3.9 billion in budget authority and $1 billion in outlays for fiscal year 1976 for this legislative package. The legislation itself is well within those limits, providing for $3.5 billion in authorization and about $650 million in outlays for fiscal year 1976.
Although I support this entire package, I am, of course, particularly interested in title II, the countercyclical assistance program, which I first proposed with Senators HUMPHREY and BROCK last winter, and which passed the Senate on July 29 as an amendment to the Senate public works bill.
As reported by the conference, the title II program is virtually identical to the original version of the bill, except that the authorization period was reduced by the conferees from 12 calendar quarters to 5.
I am extremely pleased that the conferees were able to agree on retaining the countercyclical program, because I believe the need for it becomes clearer all the time.
We are now in our 12th month of national unemployment in excess of 8 percent. If the impact of recession on State and local governments was not as clearly felt last spring, it is definitely beginning to be felt now.
Over the last several weeks, our attention has been focused on the fiscal crisis in New York City. But, as a recent editorial in the Portland Press Herald notes, the disease has spread far beyond New York. Even the State of Maine, traditionally a fiscally conservative place, is now facing a possible budget deficit caused by sluggish tax revenues.
A recent article in the New York Times, December 2, 1975, pointed to the dramatic slowdown in State and local spending, a factor which could very well retard recovery from the recession.
All across our country State and local governments are taking budget related actions that exacerbate the recession and reduce the impact of Federal Government efforts to stimulate economic recovery.
They are laying off their employees when our objective is to put people back to work.
They are raising their taxes when we are cutting Federal taxes to stimulate recovery in the private sector.
And they are delaying or canceling capital projects when the construction industry remains among the most depressed in our economy.
Just last night, for example, Mayor Ken Gibson, of Newark, announced the layoff of 582 workers in his city, including 129 policemen and firemen.
The State of Connecticut, to cite another example, has increased taxes nearly $200 million this year to balance its budget — and it still sent out layoff notices to employees earlier this month.
And in Massachusetts, New Jersey, Georgia, and Florida, to name just a few, capital projects have either been delayed or terminated.
Mr. President, this legislation, and the countercyclical assistance provision, in particular, is aimed at preventing counterproductive State and local budget actions like those I have described.
So I hope that we can move quickly today to approve this measure, and that the House will follow suit shortly. Countercyclical assistance to State and local governments is an idea which meets virtually every criterion of a sound anti-recession policy. It will get money out into the economy quickly, help most those places which have been hardest hit by the recession, and turn itself off when the recession has subsided.
Most importantly, I emphasize that countercyclical assistance will strengthen the hand of the Federal Government in dealing with the recession.
The combination of public works and countercyclical aid to State and local governments is a unique one. But I think the two approaches are logical complements to one another. Complete recovery from the recession promises to be slow, with high unemployment lingering well into the second half of the decade. A solid anti-recession program, therefore, should be one with both immediate and long-range impact, aimed at both the private and public sectors of the economy. H.R. 5247 is just such a proposal.
Mr. President, I should like to point out that we did not come easily to this point in our consideration of this anti-recession legislation. It is now nearly 5 months since we passed this legislation in the Senate. It was difficult to preserve the comprehensive public works — countercyclical assistance thrust of the Senate-passed bill and to work out a reasonable compromise on the Talmadge-Nunn amendment to the Water Pollution Control Act.
But we have overcome those hurdles, and the conference report before us deserves the overwhelming support of the Senate.
I ask unanimous consent that the article from the December 2, 1975, New York Times, and the editorial from the December 8, 1975, Portland Press Herald be printed in the RECORD at this point.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
[From the New York Times, Dec. 2, 1975]
CITIES AND STATES SLOWING SPENDING
HARM SEEN TO RECOVERY— NEW YORK'S CRISIS CITED AS INTENSIFYING LAG
(By Soma Golden)
Spending by state and local governments has been a steady and powerful generator of jobs and incomes in the United States for most of the period since World War II.
But for a variety of political, financial and demographic reasons, this spending has begun to slow — with potentially adverse effects on the expected economic recovery. This slowdown, which experts say could last several years, has apparently been intensified by New York City's financial crisis.
With state and local spending accounting for 15 percent of gross national product, slower growth in this $230 billion sector could lead to slower growth in the economy as a whole. Instead of the 5 to 6 percent yearly increase in such spending, analysts expect real growth for 1976, and probably for the rest of the decade, to be closer to 2 or 3 percent a year.
"The state and local sector is just too big to ignore," said Otto Eckstein of Data Resources Inc., an economics research company. "Any major change in the expenditure trends of this enormous sector will have an economywide impact." He noted that, in contrast, Federal spending accounts for only 9 percent of G.N.P.
"The question now is whether the growth of the state and local sector will stop altogether under the impact of New York City's problems," he added.
FEW PROJECTS PLANNED
Indeed, a check of two dozen state and local governments around the country found virtually none contemplating a major initiative in budgetary outlays for the years immediately ahead.
Instead, officials seem hard pressed even to follow through on existing spending plans as the recession's aftermath continues to sap their revenues and inflation continues to raise their costs.
Although most local and state officials publicly deny that New York City's problems have changed their budgetary practices, various outside economists think otherwise. A key Administration economist points to what he calls "a consciousness-raising" effect from New York City's disastrous reliance on heavy deficit financing.
In Illinois, for example, Gov. Daniel Walker has slashed his record $10.8 billion state budget by 6 percent through vetoes. If he is overridden by his legislature, the Governor has promised to raise taxes — rather than borrow — to cover the deficit.
CITY'S PATH CITED
Borrowing, says Governor Walker, "is the road that New York City went, and I will not take Illinois down the New York City road."
New York City, of course, is also trying to reduce spending. Markets slammed shut to the city last spring and New York has gone through a series of desperate financial gymnastics to pay its bills and trim its sails.
Despite the Administration's decision last week to offer the city seasonal loans for the next three years, New York has cut $300 million from its budget this year, which puts the budget at about $12 billion. Some $200 million of cuts must still be found to meet stringencies imposed on Mayor Beame by the Emergency Financial Control Board.
Another $800 million of potential city spending has been eliminated by a drastic slash in the capital budget, used primarily to finance construction programs and financed by long term borrowing.
The state legislature, meanwhile, is locked in a partisan debate about how big the state's deficit is and what taxes are necessary to close the gap. A modest $70 million or so has been cut from the state budget this year. The deficit however, is probably in the vicinity of $700 million.
IMPACT IS UNCERTAIN
How state and local cutbacks will affect the national economy is something about which economists disagree.
Arthur M. Okun, a former Democratic chairman of the President's Council of Economic Advisers, says the new restraint in lower level governments "does not mark the difference between recovery and recession." But "it's a relatively negative factor in the outlook now compared with two months ago,"he said.
Mr. Okun, who is now with the Brookings Institution, a nonprofit research center, has cut a half a percentage point off his earlier forecast of 6 to 7 percent real output growth for next year to compensate for the new fiscal scrutiny under way in state capitals and city halls.
But one top Administration analyst, Rudolph G. Penner, senior economist at the Office of Management and Budget, disagrees, calling the Okun estimate "an exaggeration." He concedes, however, that in the short run the new restraint by lower level governments could moderate the recovery.
Payrolls at state capitals and city halls now account for about 14 percent of the nation's total employment. The sector's jobs have grown faster in recent years than total United States employment and five times faster than Federal employment.
But the experience of past years — with spending propelled by the growth of Federal grants programs, the rise in welfare rolls, the Federal highway program, the increase in salaries of public employees, Federal revenue sharing — may not be repeated.
Changes are already under way. According to a recent survey of 48 states and 140 local governments by the Joint Economic Committee of Congress, at least $8 billion has been drained out of the sector's spending stream during 1975 by emergency budget actions at the state and local level.
One result of these moves, the study says, is the elimination of about 140,000 government jobs — the equivalent of a little over a tenth of a percentage point in the unemployment rate.
The $8 billion of changes turned up by the survey came in three forms of governmental action: $3.6 billion of tax increases, $3.3 billion of cuts in current outlays and a $1 billion in postponed capital construction projects.
It is considered ironic by any observers that at a time when the Federal Government has cut taxes once and contemplates cutting them again to stimulate the economy, state and local governments are heading in the opposite direction, taking stimulus out of the system in an effort to achieve fiscal respectability.
STATUTES CURB DEFICITS
The reason, in part, is that states, cities and counties — unlike the Federal Government — are generally bound by statutes to run their affairs without running deficits. Borrowing money is allowed, but, in general, only to finance capital expenditures or to tide the government over a cash flow problem until revenues from another source come in.
Although borrowing money is one way to bridge a budget gap, New York City's difficulties this year in repaying its creditors has soured the municipal market for many government borrowers. Although total borrowing this year is expected to be near record highs of $251 billion, raising interest rates have frightened voters into rejecting new bond issues for additional capital spending.
This has forced many governments to pursue the tough political course of raising taxes or cutting outlays to make ends meet.
As a result, states and localities are spending money at roughly a record breaking $10 billion annual rate of deficit. Without the $8 billion of spending cuts and tax increases reported to the Joint Economic Committee, the deficit would amount to $18 billion.
This marks a dramatic turnaround from the $4 billion surpluses that the sector ran in the pre-recession year of 1972. The result was an $8 billion deficit during 1974, a year of deep recession and rampant inflation.
These official deficit figures, from the Federal Government's National Income Accounts, omit an additional $24 billion of long term debt issued this year, a near record amount.
STRINGENT BUDGET POLICIES
The states and cities reporting the most stringent budgetary actions are those with the weakest local economic conditions and the highest unemployment rates.
The Joint Committee found a "significant mismatch" between resources and needs when it analyzed the fiscal conditions of three groups of states — those that produce energy, the farm states, and those with high unemployment.
The 13 energy producers, according to the report, are in "a very strong financial position" on average. These are Alabama, Arkansas, Oklahoma, Texas, Louisiana, West Virginia, Ohio, Utah, Indiana, New Mexico, Montana, Wyoming and Tennessee. Overall, these states pursued very moderate spending cuts or tax increases this year.
The 18 states with relatively high unemployment were Oregon, Washington, Delaware, Pennsylvania, Florida, Georgia, North and South Carolina, Connecticut, Maine, Massachusetts, Rhode Island, Vermont, New Jersey, New York, Michigan, California, and Nevada.
Another relatively prosperous group of states discovered by the Congressional study are eight heavily agricultural states, namely Iowa, Minnesota, North Dakota, South Dakota, Wisconsin, Kansas, Nebraska and Idaho. They also were able to avoid major moves toward budgetary restraint during 1975.
"In 1973 and 1974 we had a net transfer of wealth in the United States to the energy or farm producer states," said Ralph Schlosstein, an economist with the Joint Economic Committee, who directed the group's study.
However, a recent drop in farm prices and farm income, Mr. Schlosstein said, could put the farm states into the same difficult predicament as the 18 states in the study with jobless rates at or above the national average.
As a group, these states have "severe financial problems."They have been hit by the recession on both sides of their budgets — expenditures up for unemployment compensation and welfare, while revenues have been reduced. And they have little surplus left to live off this year, the study said.
The result has been a necessity on the part of officials in these areas to cut spending or raise taxes of citizens who can ill afford it.
"Restraints are being put on hardest in just those regions and states with the worst economies," Mr. Schlosstein said.
Officials in these areas hardest hit by unemployment seem to agree. In Detroit and Newark, they endorsed the effort in Congress to adopt countercyclical revenue sharing on top of the existing non-cyclical program that pumps out about $6 billion a year for state and local governments.
Although the immediate economic strain in the United States has obviously taken its toll on state and local spending, analysts insist that more than the business cycle is at work to cut back growth of the sector.
A major dampening force, they say, began in the late 1960's when the nation's school age population dropped, lifting the pressure on lower level governments to spend money on education outlays.
An even more powerful potential force in dampening the growth of state and local spending may be what a Congressional budget expert called "the fundamental fed-up-ness of this country with public spending." He, like many others, attributed popularity of Edmund G. Brown Jr., Governor of California to this anti-government spirit.
Governor Brown is struggling now to hold California spending increases to, at most, the inflation rate by forcing what he calls "very tough choices" on the legislature, choices between salary increases and education at outlays, between colleges and child care, between health and conservation.
TAX DEMAND SEEN
"I know there will be a strong demand for new beer and liquor taxes and an increase in the gasoline tax,"Governor Brown says. "But I certainly will work to avoid them as I did in the last year. I have a rather jaundiced view of any new taxes."
A similar sentiment was expressed by the Governor of Texas, Dolph Briscoe. Though he is feeling little financial pressure these days because of his state's energy tax revenues, he is already worrying about balancing the budget in fiscal 1978 — two years away. To avoid a tax increase then, he has pledged to trim the budget.
A similar attitude prevails in the state house in Massachusetts, where Gov. Michael S. Dukakis has just acceded reluctantly to a $364 million tax package to support his minimal budget of $3 billion.
[From the Portland Press Herald, Dec. 8, 1975]
BUDGET CRISES
The nation has become so preoccupied with New York City's desperate financial situation that it tends to overlook painful symptoms of the same illness elsewhere in the country.
Budget crises may not be of epidemic proportions but they are so common as to indicate a widespread fiscal problem.
Right here in Maine it's almost impossible to know what the financial situation is. Governor Longley's office talks of costs reduced, money saved and the prospect of a legislative session without a tax increase.
But members of the Appropriations and Financial Affairs Committee warn that only swift action can avoid a financial crisis in the state's affairs. They say they have found no substantial savings, that a school deficit could go as high as $9 million and that the state income will fall short $2– $3 million. There are mutterings of a strike by state employes unless wages are adjusted and the University of Maine is taking drastic action to meet its money problem.
In the preoccupation with New York City, it was hardly noticed that one of that city's smaller municipal neighbors, Yonkers, was rescued from default. Governor Carey and the state legislature provided $25 million in emergency aid in return for which Yonkers surrendered its fiscal responsibility to an Emergency Financial Control Board.
The Commonwealth of Massachusetts is in shaky financial condition. Bay State officials have overestimated revenues, including federal aid that never materialized, while underestimating expenses, particularly welfare. At the same time, costly new social programs were introduced.
The nation's Capital is in trouble too. The District of Columbia faces a $45.5 million budget deficit this year and it has $1 billion in unfunded pension obligations. As in New York City, the ratio of municipal workers to city residents is unusually high.
New York City's condition is acute. But it is an illness to which a great many cities and states are susceptible and Maine is not without its symptoms.