May 16, 1977
Page 14870
Mr. MUSKIE. Would my distinguished colleague from Louisiana yield for an inquiry?
Mr. LONG. Yes, I yield to my colleague from Maine.
Mr. MUSKIE. I can see that putting the same language into similar bills makes a great deal of administrative sense, but I share Senator LONG's concern that we not engage in overkill.
Limiting the application of these very tough civil rights rules and procedures seems to be a workable proposition, and one that will still result in a great deal of good. My questions involve when one would look for the application of these provisions.
In order to be under the exception clause of the civil rights provisions, would it be necessary to show that a particular tax, intergovernmental transfer, or other source of funds was initially dedicated to the program or activity?
Mr. LONG. No, it would not be as we intended it.
Mr. MUSKIE. Would it be sufficient to be under the exception clause to show that receipts from a particular tax, transfer, or other source or combination of such taxes, transfers, or other sources of funds, gave rise to all the funds for the program or activity which is alleged to involve discrimination?
Mr. LONG. Yes, that would be sufficient.
Mr. MUSKIE. Would it be sufficient to be under the exception clause to show that all the countercyclical revenue sharing funds were spent for programs or activities other than the one in which discrimination was alleged?
Mr. LONG. Yes, that would be sufficient.
Mr. MUSKIE. I thank the Senator. That is how I would interpret these provisions. It seems a reasonable and proper interpretation. I would, therefore, join with my colleague from Louisiana in supporting this amendment.
Mr. President, this amendment which extends and expands the so-called countercyclical assistance program, has been the subject of heated debate on the House side. Some of the arguments made against the current program and the Senate-passed amendment have been confusing and misleading. As the principal sponsor of this legislation from the beginning, I would like to clarify some of the questions that have been raised about the purpose and the operation of the program.
The first point I would like to make is that the countercyclical assistance program is and always has been an anti-recession program. It was enacted as part of the jobs bill last year, and it was included in President Carter's economic stimulus package this year.
The underlying assumption of the program is that recession takes a severe, if uneven, toll on State and local governments throughout the country. This toll takes the form of shortfalls in revenues as well as increased demand for recession related services. Because of these added pressures on their budgets, those State and local governments most affected by recession are forced to make restrictive budgetary adjustments — such as tax increases and service cutbacks — in order to make ends meet. Such budget adjustments, however, can work at cross purposes to Federal efforts — like tax cuts and jobs programs, for example — to stimulate national economic recovery.
Many economists believe that State and local governments now constitute such a significant part of our economy that their actions need to be weighed in the development of national economic policy. In time of recession, this means that their budgetary situations need to be stabilized so that restrictive budget actions do not become a drag on economic recovery.
That goal of stabilization is the primary purpose of the countercyclical assistance program. It is not intended to put large numbers of people to work, although it does have a substantial jobs impact. Nor is it intended to stimulate large amounts of new spending.
Countercyclical assistance can appropriately be described as unemployment compensation for State and local governments hard hit by recession. It is intended to put some breathing room into their budgets to enable them to get over the worst of recession with minimal reliance upon restrictive budget adjustments. In the long run, the program is intended to enhance the overall Federal goal of economic recovery.
The cost of recession to State and local governments is substantial. A 1975 report by the Joint Economic Committee estimated that because of recession State and local governments would be taking approximately $8 billion out of the economy in the form of restrictive budgetary adjustments, precisely at the same time that the Federal Government was trying to stimulate recovery through increased spending.
A more recent study by the Academy for Contemporary Problems at Ohio State University has estimated that during 1974 and 1975, the recession cost State and local governments roughly $24 billion, including actual budget adjustments as well as the unrealized change in potential budgets.
In view of the magnitude of these costs, countercyclical assistance is a modest response indeed.
In debate on the House side, much was made over the question of whether some of the major recipients of countercyclical assistance under the current program — places like New York and Detroit — were suffering from cyclical economic problems or from "secular" long term economic difficulties, as if the two could be clearly separated.
The answer is clear, at least to my way of thinking. Obviously, places like Detroit, New York, or Newark are suffering from severe and chronic economic problems. But is is equally apparent that the recession has made things much worse. In fact, the two problems probably go hand in hand, in that long term economic difficulties make communities much more vulnerable to economic downturn.
In the best of times, a place like Detroit may have unemployment that is well above the national average. But during the height of this recession, unemployment in that city rose to over 20 percent.
It is that recession related increment that the countercyclical assistance program was intended to address, and nothing more. It is ludicrous to even suggest that a program the size of countercyclical assistance could have been intended to deal with long term urban problems. If from no other evidence, that should be clear from the fact that the program is written to turn off automatically when recession is substantially over — not when "the urban problem" is solved.
A second major point I would like to make, Mr. President, concerns the use of unemployment as the targeting factor in the countercyclical formula.
Once again, this was a subject of much controversy in the House, on the grounds that unemployment is not a good measure of the recession's impact, and furthermore, that the unemployment data itself is not very reliable.
To these arguments, I would like to make several points.
In the first place, the JEC report to which I referred above found a strong correlation between high unemployment and budget difficulties. That study found that the distribution of the recession's impact was extremely uneven, with the least impact in the low unemployment energy and agriculture States and the greatest impact in the high unemployment industrialized States of the North and Midwest. It further found that the incidence of restrictive budget adjustments was markedly higher in the latter group.
A survey conducted by my Subcommittee on Intergovernmental Relations of about 400 State and local governments — though not a scientific sample like that of the JEC — also found a strong correlation between unemployment and the incidence of budget adjustments. Of those jurisdictions with unemployment over 8 percent, an astounding 96 percent responded that budget adjustments had been necessary over the last 2 years to deal with recession related budget difficulties. Among lower unemployment jurisdictions, however, the percentage was far lower.
Of course, Mr. President, as is the case anytime one tries to apply a uniform factor to a very non-uniform population, there will be cases where high unemployment is not accompanied by budget problems. And critics in the House were very quick to point out an example or two where this was the case.
It is precisely because we knew such a situation might arise that we included in the original legislation a statement of assurances that each jurisdiction be required to complete, attesting to the fact that the countercyclical funds were needed. According to the Office of Revenue Sharing, a number of jurisdictions were honest enough to say that they did not need the money, even though their unemployment was high enough to make them eligible.
With regard to the reliability of the unemployment data, Mr. President, I have several comments.
Most importantly, neither I nor anyone else who has worked on this program has ever claimed that the unemployment data is all that we would hope. Of course, it is not perfect.
However — and it is a very important however — unemployment data is the best indicator that we have which is available for a large number of local governments on a regular and timely basis.
No other economic indicator is available for so many jurisdictions on a monthly basis.
So unemployment is the best that we can do at the present time. If it is not perfect, does that mean that we should abandon the program altogether? If so, then we should consider abandoning the public works and CETA programs — both of which we have just reenacted, and both of which allocate funds on the basis of the same unemployment data.
To sum up, Mr. President on this question of the targeting factor — first, there is a solid body of evidence indicating that as a general rule, there is a positive correlation between high unemployment and fiscal distress. Second, there is no other indicator which is available for a large number of individual jurisdictions and for which there is such a correlation. Tax effort, the most commonly suggested alternative, is a highly inconsistent measure, reflecting as it does both fiscal distress and affluence.
There is one additional issue I would like to address, Mr. President, which goes to the very heart of what this program is all about.
Throughout the debate in the House, there was the recurring suggestion that the formula is somehow unfair, because under it many jurisdictions receive no funds at all.
I must confess that I find this complaint rather astonishing.
We are talking about an anti-recession program, not an add-on to general revenue sharing.
Those governments who have received no money under the program are those places with full employment — unemployment of 4.5 percent or less.
In a more perfect world where we had other economic indicators for State and local governments, I believe that reasonable men could disagree over whether unemployment is the best indicator of fiscal distress.
I do not believe, however, that any reasonable man could argue that a low unemployment rate is an indicator of fiscal distress.
Therefore, I find it both fair and reasonable that jurisdictions with full employment receive no funds under this program. To do otherwise is to totally distort the basic purpose of the program.