General revenue sharing.-General revenue sharing is the cornerstone of a major reform of the fiscal relationships between the Federal Government and State and local governments. Outlays in 1976 will be $6.3 billion, with one-third going to State governments and twothirds to local governments. Over the 5-year authorized life of the current program, $30.2 billion of Federal funds will have been distributed. These payments are made subject to minimal restrictions and controls, thus allowing decentralized decisionmaking and narrowing the gap between people and the governmental authorities dealing with their problems. The principal requirements of the program address such concerns as assuring nondiscrimination and public participation in spending decisions. By permitting State and local governments greater latitude in setting priorities-without undue Federal interference-general revenue sharing is helping to restore a balanced Federal system while increasing government accountability. The Office of Revenue Sharing supplements its own efforts to assure compliance with program requirements by relying extensively on other Federal and State agencies. Under a recent agreement, the Equal Employment Opportunity Commission and the Office of Revenue Sharing will cooperatively assure employment nondiscrimination in those instances where resolution cannot be achieved by negotiation. In addition, agreements have been negotiated with 30 States whereby these States assume the responsibility for auditing the use of revenuesharing funds by their local jurisdictions. Under these agreements, the Office of Revenue Sharing follows up on audits that reveal any form of noncompliance. Through January 6, 1975, $17.3 billion has been distributed. These funds have enabled State and local governments to provide needed services, to reduce debt burdens, and in many cases to reduce taxes. The Administration will recommend that the general revenue sharing program, which terminates December 31, 1976, be extended through 1982. The proposed legislation will continue the authorization and appropriation of specific annual amounts, increasing by $150 million annually to $7.2 billion for 1982. The renewal legislation will continue the program in essentially its present form. Greater public participation will be encouraged and reporting requirements simplified. A constraint on the distribution formula will be eased to allow increased entitlements for some jurisdictions. Energy tax equalization payments.-The increased cost of petroleum products resulting from the President's energy recommendations will substantially increase costs for State and local governments, both directly for energy purchases and indirectly in the increased costs of other purchases. Equalization payments will be distributed to State and local governments to compensate for these increased costs, beginning in the last quarter of 1975. This will increase outlays distributed using the revenue sharing formula by $500 million in 1975 and $2 billion in 1976. Estimates for these payments are included as part of the budget "allowances." Federal payment to the District of Columbia.-The District of Columbia's operating budget is financed by local taxes and by an annual Federal payment to compensate for burdens placed on the District as the Nation's capital. A Federal payment of $254 million is requested for 1976, as authorized by the District of Columbia SelfGovernment and Governmental Reorganization Act. Other general purpose fiscal assistance.-The Federal Government returns all or part of certain taxes and other charges to specific jurisdictions. These payments are known as shared revenues. The Department of Agriculture pays 25% of most national forest receipts to States to pay for roads and schools in counties in which the receipts are generated. These payments will total over $118 million in 1976. Another $1 million will be paid to several States under other statutory requirements. The Department of the Interior returns to States and counties part of its receipts for activities such as timber sales, mineral leasing, and grazing on Federal lands. These shared revenues are expected to total $196 million in 1976. The Department of the Interior returns most Federal revenues collected on Virgin Islands products transported to the United States to the Virgin Islands for general purpose governmental use. Similarly, the Department of the Treasury collects and returns to Puerto Rico and the Virgin Islands duties and other taxes collected by the U.S. Customs Service. The Internal Revenue Service collects and returns to Puerto Rico Federal excise taxes on articles produced there and either transported to the mainland or consumed on the island. Two major tax expenditures also provide general purpose fiscal assistance to States and localities. The exclusion from income of interest on State and local debt instruments allows these governments to borrow at relatively low interest rates. The revenue thus foregone by the Federal Treasury is estimated to be $4.8 billion in 1976. The deductibility of State and local taxes allows individuals to offset their State and local tax liabilities through reduced Federal taxes; the aggregate reduction is estimated to be $10.0 billion in 1976. The deductibility of only some State and local government taxes is included as a tax expenditure in this function. For further information see Special Analysis F, "Tax Expenditures," in the Special Analyses volume of the Budget. INTEREST Budget outlays for the interest function will rise by $3.3 billion in 1975, and by another $3.1 billion in 1976 reaching $34.4 billion. These increases result from the financing of budget deficits in each of these years. 1 Excludes interest on debt issued by various agencies, which is included in the outlays of the function served. For this function budget authority equals outlays. 2 Includes interest paid on the public debt held by Government investment accounts. A substantial amount of the outlays in the interest function is paid to trust funds on Government securities held by them. These payments, amounting to $8.3 billion in 1976, are deducted from both outlays and budget authority in arriving at budget totals, since they are intragovernmental transactions. Therefore, as shown in the table below, net interest outlays are projected to be $26.1 billion in 1976. 1 Shown as budget receipts. Net amount of interest to be paid from receipts or other means of financing. In addition, $6.1 billion of the interest paid on securities held by the Federal Reserve banks will be returned to the Treasury as miscellaneous receipts. Hence, the net impact on the 1976 budget of interest paid will be $20.0 billion. THE BUDGET SYSTEM AND CONCEPTS The budget system of the U.S. Government is based upon a structure for financial administration that has as objectives the efficient management of programs in relation to the requirements of the Nation, and effective financial control. This year the budget process begins to undergo a major change due to the recent enactment of the Congressional Budget and Impoundment Control Act of 1974 (Public Law 93-344). The act establishes new congressional budget procedures and a new fiscal year time-frame (October 1 through September 30) effective with fiscal year 1977. There will be a 3-month transition period between fiscal year 1976, which ends June 30, 1976, and fiscal year 1977, which begins October 1, 1976. THE BUDGET PROCESS The budget process has four identifiable phases: (1) executive formulation and transmittal; (2) congressional authorization and appropriation; (3) budget execution and control; and (4) review and audit. Each of these phases interrelates and overlaps with the others. Executive formulation and transmittal.—The budget sets forth the President's financial plan of operation and thus indicates national budget priorities for the coming year. The President's transmittal of his budget proposals to the Congress early in each calendar year climaxes many months of planning and analysis throughout the executive branch. Formulation of the 1976 budget began in the spring of 1974, although tentative goals were set earlier-when the 1975 budget was transmitted to the Congress in February of 1974. During the period when a budget is being formulated in the executive branch, there is a continuous exchange of information, proposals, evaluations, and policy determinations among the President, the Office of Management and Budget (OMB), and the various Government agencies. In the spring, agency programs are evaluated, policy issues are identified, and budgetary projections are made, giving attention both to important modifications and innovations in programs and to alternative long-range program plans. Preliminary plans are then presented to the President for his consideration. At about the same time, the President receives projections of estimated receipts, prepared by the Treasury Department, and projections of the economic outlook, 162 |