bind we are in right now is due to this very thing. We just bit off more than we could chew and now we cannot pay the bills. But anyway, it is here.

TAXPAYERS' FAILING TO REPORT LEGAL RESIDENCE

The Internal Revenue Service has found that this law carries a provision that taxpayers must list their legal residence on their income tax reports, and that they are subject to a $5 fine if they fail to do it.

About 30 percent of them are not doing it. I am insisting that IRS go out and fine all these people $5 because that makes that many more people mad. But at any rate, the point is that this is to give the Internal Revenue Service, at a great deal of expense even when the taxpayer cooperates, a chance to find out a new thing about the subdivisions of government; how many people and how much income, average income, all this.

The purpose of this is to help them write the formula for how much money these subdivisions are going to get out of this fund.

When you think about the manpower and the cost that we are asked here to provide to carry out this function, which is in addition to the revenue sharing distribution itself, I am really surprised at the cost.

CENSUS FIGURES AS BASIS OF FEDERAL-AID FORMULAS

The census figures are good enough to make a congressional district for 10 years, it is good enough for the advertising media of the Nation to set up their budget for 10 years, it is good enough for all sorts of official and nongovernment decisions for 10 years, and always has been. We have had formulas of one sort or another ever since I have been a Congressman on Federal-aid programs, based on census figures.

Nobody has ever found any problem with it, until revenue sharing comes along. Now here we are spending all this money to get up-todate information because we are not willing to use the last census figures.

Now I do not understand why we have to go to all this trouble and expense, because I think the amount of money that town A, B, C, or county D, E, or F is going to get will be a lot less than the cost to get the information.

At any rate, I wish you would have a look at the things that are done to make revenue sharing work, as to whether these are all legitimate or not.

REVENUE-SHARING REGULATIONS

Now they have issued a long list of regulations. I thought this money was to go down there and they would leave it up to the people who got it to have some freedom of choice to do what they want with it. Mr. MERRIAM. So did they.

Mr. STEED. But there is apparently more regulation on this than there was on the money we sent before. They convinced me that although the law was supposed to be a "turn it all over to them" law, it turned out it never was. It has more hidden strings than anything else.

If we are going to do it, it seems to me that the concept that was in the President's message made some sense. If we are going to give up some of the old ways of doing things, fine. But why then kid ourselves by putting more strings on the new program than we had on the old?

What I am trying to say is, I am not blaming you for what I do not like about revenue sharing. I am trying to say if we are going to do it, why not do it right? Why do we not find out all the things in it that are self-defeating?

I guess I ought to hope it just strangles on its own regulations so that nobody can stand it, and then we can kill it off. But I am not to that point. I just happen to think that some of the things that are going to go down the drain in place of revenue sharing are a lot more needed than those things revenue sharing is going to provide.

OBJECTIONS TO REVENUE SHARING

The basic objection that I have, and this is some of the study I think that somebody like you ought to make because apparently the rest of us are too involved now to do any good, is that the people who get the money, the cities, counties, and such have never had enough money to do all the things they wanted to do.

Even Congress cannot overspend and borrow and get all it wants. So when they get this money, the sort of programs that were previously financed by Federal aid do not stand a chance, because the legislature is going to solve its own problems, the county commissioner is going to solve his own problems. These do not have any relationship at all to the kind of problems Congress was trying to solve when it set up these grant programs.

This is why I think you will find a lot of people wonder whether they made a bargain or not, when they swapped something they were getting in exchange for something which has so many restrictions on it.

For example, why would a county commissioner want to vote his share of revenue-sharing funds to soil conservation work? It might be that county soil conservation was going to have more long-range benefit to the public than anything he was doing.

I think that is why revenue sharing is going to lay an egg before it is over with, because of the fact that the people that you are giving this free choice to already have decided the priorities for its use the minute they lay their hands on it. It is a problem that already exists. Maybe they need help in those problems. Old programs will be canceled because no recipient of revenue sharing is going to pick up the tab on any ongoing Federal program.

As a practical matter, you cannot expect local elected government officials to turn their back on purely local problems that are of the most importance and pressure to them.

Now, this is something that I could be wrong on. I think you find different views on this committee. Some here would not agree with a word I have said. They are troubled, too. We all need more information. This is something that is not going to go away either.

We have a 5-year program, but very soon it is going to be time to make the decision as to where we go from here. If it is a good thing and ought to be continued, we ought to try to clarify some of the problems.

Mr. MERRIAM. I would quickly like to say two or three things, Mr. Chairman.

First of all, clearly, revenue sharing is no panacea for all the ills of government. I think we all agree on that.

Second, our studies did show that the proliferation of the categorical grant programs in the last 10 to 12 years have reached what we considered the breakdown point. There are over 1,000 of these categorical grants.

The local governments and the States were putting on full-time staffs to engage in simple grantsmanship, if you will.

The effective control of those categorical programs was not really by the Congress, or the President for that matter, but it was between the program specialists in the Federal Department dealing with the program specialists in the State and local government. That is where the control went, except for the total dollars, of course.

Third, the original idea was that general revenue sharing in effect, would be new money and that so-called special revenue sharing, and frankly, I am sorry that phrase was ever used for the second part of the program because they are two quite different things, and now they have gotten confused in everybody's mind, would consolidate a lot of these existing categorical programs and put them into more general groupings. This would still leave to the Congress obviously, as it must, the determination of general directions.

Finally, I could not agree with you more that there must be some intensive evaluation of the program that was enacted. In this is what we will play one small part.

Let me just give you a couple of illustrations to supplement what you have said.

First of all, you commented on the complex formula adopted. The formula is what has led to what they feel is a need for this new data.

I must say I was not aware, like you, of the $5 fine for not giving the

requested information. The need for the data arose from the complexity of the formula, No. 1.

No. 2, in my opinion, and I think in the opinion of the Commission, too many units of local government were involved. There could easily have been a cutoff with lesser numbers being involved and not doing any damage. There is some feeling that certain units of government that are not necessarily always the most efficient and I tread on a sensitive, delicate area, such as townships in some States-are really not needed, but their continuation is encouraged by the revenue sharing legislation.

Already we have run across some cases in which annexations, which is one way of consolidating some of our municipal governments, are being discouraged because the formula would change with the annexation, so that the combined unit of government is going to get less money than it would have as two separate units.

For example, in one situation where an annexation referendum recently was up, the whole argument against the annexation was "We will lose revenue sharing dollars if we annex."

So the formula, some of the data that is being collected, some of the strings that were put on by administrative action, are not all required by the actual legislation. This leads us to believe that there ought to be presented to the Congress perhaps next year some suggestions for improving the legislation so that it would have a chance to work better. We will be proposing this.

Mr. STEED. Even if I were for it, I think I would want some of these matters cleared up, because I think it is heading into a lot of trouble.

It also has a peculiar spinoff such as in the case of Oklahoma City where they went out and annexed all sorts of areas way beyond their normal boundaries so that the rural communities' share of revenue sharing goes to Oklahoma City. Without any expenditure they got some of the money from a little, old, poor rural county. That did not set very well down there.

Under the formula, though, it is going to stay that way. Of course, the resentment against it is going to stay there too. I think that somewhere along the line this will come out; it will begin to pinch, then resentment begins to grow and then you have a public opinion situation that is going to do harm to your program that could have been avoided.

NEW POSITIONS

The two new positions, what will be the grade and salary that you have in mind?

Mr. MERRIAM. I will ask Mr. MacDougall to answer that.

Mr. MACDOUGALL. We have one grade GS-15 in the request and we have another which is a GS-9, step 3. What we have done to start this out, Mr. Chairman, is now that we are authorized to have these positions but have not yet been authorized any additional funds for the rest of this fiscal year, we have assigned one of our very senior people in our public finance section to start the program. He began on December 1. He is receiving assistance from others in the staff and we are picking up the clerical staff work by sharing our regular employees.

Now when we are funded, if we are, on July 1, we will confirm this senior analyst in that position and then appoint a junior professional in the other slot. Then we will replace the senior man with a new person in our regular staff. But we wanted to use a very seasoned, experienced person on this. He is the one who has conducted our study of school finance over the years, and he is thoroughly familiar with all the background of revenue sharing.

Mr. STEED. Will you have any money lapsing in this fiscal year? Mr. MACDOUGALL. Not substantially any. We will be very close

to the wire.

FUNDING OF PAY RAISE

Mr. STEED. Apparently this $107,000 increase you asked for does not take into account the 5.14-percent wage increase. Were you able to absorb that?

Mr. MACDOUGALL. We are still not sure how much we can absorb. What we are trying to do is, as I think every agency does, even a tiny one like ours, is negotiate with the OMB as to how much we can absorb.

Mr. STEED. How many dollars are we talking about in the case of this item?

Mr. MACDOUGALL. We are between $8,000 and $12,000 on that, for this fiscal year.

Mr. STEED. What was the impact of the wage increase on your payroll in terms of dollars?

Mr. MACDOUGALL. It was $18,000 total.

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Mr. STEED. You have all of it under your thumb now but abou $8,000?

Mr. MACDOUGALL. That is right.

FUTURE WORK OF THE COMMISSION

Mr. STEED. You are a permanent agency by law, and I am sure that you think in terms of an on-going, continuing activity. Do you feel that in the foreseeable future you will be working at about the same level that you are now?

Mr MERRIAM. Yes, sir.

Mr. STEED. You think this is a fast enough pace to cope with the work that you can do the most good in?

Mr. MERRIAM. From the outset, the first Chairman, Frank Bane, and his executive director, Mr. Colman, I think very wisely felt it was important to have a relatively small, but highly competent professional staff which would establish, as I believe it did, a nationwide reputation for the thoroughness of its research work. We have maintained that concept in the four years, or 31⁄2 years I have been Chairman. Mr. MacDougall has been executive director almost that length of time, and we both feel this size operation is about the one that would keep us lively, but not fat, if you will. That is our endeavor.

Mr. STEED. You get all these suggestions as to what you should be doing and what you can devote your resources to, but what percent of all the suggestions that come in are you able to fulfill? How rich a field of ideas do you work in and what percentage of them are you able to cope with?

Mr. MERRIAM. That would be a hard one to answer, Mr. Chairman. Mr. STEED. I am assuming there is no dearth of ideas.

Mr. MERRIAM. If you are asking are we going to run out of things to look at, the answer is no. I remember when I became Chairman I had lunch with Gov. Farris Bryant, my predecessor, and he said, "Well, Bob, you are coming onboard at the right time because we have run through the easy ones, and from here on out you are going to have to wrestle with some of the tough ones."

We have this whole question of property tax and school financing, the whole question of metropolitan areas, local government financing, et cetera, which are indeed tough ones.

We from time to time want to review things we looked at in the past. For example, we made probably the only really thorough study of property tax administration that had been made up to then, 1963. When we got into this new study we updated that and discovered that some things had happened in the 10 years that intervened, but a lot of things had not happened in the way of State improvement of assessment and enforcement procedures on property taxation. I am not sure this was the thrust of your question, but there are a number of unanswered problems that now exist that we have not looked at.

You mentioned one, this whole question of transportation, and I am sure there will be new problems arising that we will want to continue to focus on and some old problems that we have looked at that we will want to review again.

ENVIRONMENTAL PROBLEMS

Mr. STEED. Is the environmental thrust that has come about in the last few years beginning to cause any Federal-State type problems?