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Mr. GINSBURG. That is why we support the common thread you are hearing in our testimony, that is, there is a need for ORS to be far more vigorous in seeing to it that these very fine provisions are, in fact, implemented at the local level.

Mr. FOUNTAIN. In my own area, particularly in the smaller communities, I made some observations at the hearing, and they said not to worry about the lack of attendance and that there are always one, two, three or four people representing various organizations who are in the audience. They said they did not hesitate to express themselves if they differ in any way.

So, we may have that kind of appearance without it really being recognizable, that is, with someone representing large groups rather than appearing in large numbers.

Mrs. Snowe?

Mrs. Svowe. Thank you, Mr. Chairman. I thank all of you for your informative testimony. It is obvious you did quite a bit of work and deliberation on this. I have a few questions. I continually hear from all of you

that

you are supportive of the administration's proposal. The subcommittee has not had the privilege of examining the administration's proposal because it has not been formally submitted to the Congress. We are expecting to hear from the Secretary of the Treasury, Mr. Miller, tomorrow morning. He will submit their proposal. I understand there are some changes.

Are you fully aware of the changes involved? Some of them, I think, contradict your testimony that you are presenting here this morning. One of them is that the President is suggesting the elimination of the States' share of revenue sharing.

Mr. TAYLOR. We are not privy to any information that the Congress does not have. The five things we are talking about are these. Let me be clear that we are not talking about elimination of the States' share. We are talking about a package of five proposals that go to the allocation of the local share.

We know them in outline, although perhaps not in detail. One has to do with raising the 145 percent limit maximum to 175 percent.

The second has to do with reducing the minimum from 20 to 10. A third is designed to get at the problem of shadow governments which get 50 percent or more of their funds from revenue-sharing sources. As we understand it, that is dropped to 25 percent in the proposal.

The other two things have to do with reduction of what we might describe as the windfall which goes to very wealthy tax enclaves and wealthy communities. All we have seen about that is a chart as to how the changes would affect the sample number of communities.

On the basis of that, we think those are changes that do go in the direction of equity, but, of course, we would like to see the details as much as you would.

Mrs. SNOWE. We have no way of measuring, based on what the staff can find out, and we do not have a printout from the administration to suggest how their changes will impact on the various localities throughout the country.

Part of the President's proposal is to eliminate the States' share. It would be over a 2-year period—excuse me, I am informed it would be done right away. It would establish allocations to those governments based on measuring the aid that was given by the States to the local governments in sharing their portion of the revenue-sharing formula.

In a funny sort of way it is penalizing those States which did not share their revenue sharing, which is not what we were intending to do. In many cases the State did share its share with the local levels of government.

In this case the President is suggesting helping those localities that did receive direct aid from the State.

Also, it would eliminate the measurement of aid to education given by the State to localities. Those are two areas, certainly, that need to be addressed.

Also in your testimony, Mr. Taylor, you suggest the minimum threshold of need. Yet, revenue sharing has never been based on a criteria for need. It has been based on sharing Federal revenues with localities.

I wonder whether or not we want to redirect that effort. There are so many categorical grant programs at the Federal level which require local and State governments to comply with certain regulations in order to receive Federal moneys. I think in this one program, which is why I happen to favor it, it allows flexibility for the State and local governments to do what they see fit with this money.

Mr. TAYLOR. Let me make two brief comments.

On the second point, while it is true that this is not a categorical program which is designed to meet specific needs, if you go back to the hearings in 1972 and again in 1976, I think you will find continuing statements that the purpose of the formula is to be responsive to need. Congress wants to put the money where the needs are.

Our basic point is that there are better ways of doing that. Per capita income has not proven to be a surrogate for need. So our proposals with respect to the threshold and other things that are really designed to attain what we understand to be a basic purpose of the law and that is to allocate moneys at least in rough proportion to need.

On the first point that you made—that is another proposal we have not seen. We have not seen how the administration proposes, in effect, to replace some portion of the States' share by directing it to hardpressed cities and localities. But regardless of what that proposal may say, we would stick to our basic point, that is, that the States are important, responsible units of government and that many of them are doing a better job than they have been in the past in redirecting the Stato aid to areas of need. We think the way to approach this problem is not to eliminate the States' share and then say that here is another pot for localities, but to gear the States' share to reward States that are providing funds to those various communities that presumably the administration will help separately with whatever new proposals they have. That is our approach.

Mrs. SNOWE. I have a measure of concern about that. That was not the original intention of revenue sharing. Now in a way we are going

to be penalizing those States which did not do that. It is nice that they have, but that is one of the reasons I have been suportive of this. I am generally supportive of revenue sharing as a concept. But now we may be faced with penalizing those States who did not give their share to the localities.

Mr. TAYLOR. If the State share is eliminated, all States will be penalized in that sense.

I do not mean to play with words, but what we are saying is this. States ought to be provided with an incentive to do better targeting at their own level. Some States would receive a reduced share under our proposal, and we hope they would have an incentive to move up in the rankings by doing a better job of targeting. We think that is the kind of approach to take in an era of fiscal restraint.

Mrs. SNOWE. Thank you.
Thank you, Mr. Chairman.

Mr. FOUNTAIN, Mr. Ginsburg, on page 3 of your prepared statement, you noted that the entire GRS amount has been spent on police and fire outlays in a number of jurisdictions. Is this information based upon the expenditure reports filed by those local governments?

Mr. GINSBURG. That is correct. We use those reports. We took the information from that according to the budget lines which were indicated by those reports.

Mr. FOUNTAIN. As it was brought up many times in the subcommittee's 1975 hearings—in which you participated—revenue sharing funds are fungible. That is, this money becomes commingled with and indistinguishable from a local government's own funds in most cases. Consequently, allocations that are spent on police and fire may simply be substituted for the local government's own money thereby releasing an equivalent amount for other purposes.

Did your survey determine the purposes for which this released money was actually spent ?

Mr. GINSBURG. No, it did not. You do raise the whole issue of fungibility and the difficulty of tracking down revenue sharing which adds to the complexity of citizen participation.

Mr. FOUNTAIN. Yet that is the thing they all like.
Mr. GINSBURG. Right.

Mr. FOUNTAIN. In those instances where money was appropriated for police and fire protection, does your survey disclose whether those uses were approved or opposed by a majority of the local residents?

Mr. GINSBURG. No, it does not. What it shows, though, is that in most cases these funds are used as substitutes for previously allocated funds for those same purposes. In most of the cases, this does not represent any increase in the funds for public safety. They were simply putting $100,000 of general revenue sharing into the general fund.

In some cities, the entire police department, for example, in St. Paul, is funded with general revenue sharing funds. There are no "locally raised funds” being used for general revenue sharing. This supports your view, Mr. Chairman, that this is a kind of substitute which releases formerly designated police and public safety funds for other purposes.

We recognize that there is a real statistical weakness in these facts.

Mr. FOUNTAIN. On page 5 of your statement, you refer to instances in which notice for the second budget hearing did not follow the statutory requirements. Have these violations been brought to the attention of the Office of Revenue Sharing!

Mr. GINSBURG. No, but we are, on the basis of the survey which was just completed in February, sending a copy of each of those situations to the Office of Revenue Sharing.

Mr. FOUNTAIN. I would like to direct this question to you, Mr. Ginsburg, and also to other members of the panel who may care to comment.

The requirement for filing a use report with the Census Bureau at the end of each fiscal year was recommended by the subcommittee and included in the law in order to give interest groups in the community an opportunity to compare the budget decisions made by the local legislative body with the report on how these funds were spent.

We adopted this reporting requirement with full knowledge that this information would not be useful in many or most instances as a representation of the actual end use or impact of the revenue sharing funds.

To your knowledge, has this reporting requirement been of assistance to local interest groups and citizens in holding the public officials accountable ?

Mr. GINSBURG. I would have to say very candidly that we have not found local groups using that in the manner you have described. Our unfortunate conclusion at this stage is that general revenue sharing as a high visibility local revenue issue does not exist. Because of the other factors I mentioned, it does not get the kind of attention we think it deserves, and we are doing all we can to promote and foster more citizen interest in it.

So, to your question, very directly I would have to say it has not been used by most of the local groups in the manner Congress intended.

Ms. RUBIN. Mr. Chairman, our members who did respond to a survey in this area did not comment directly on that point, but they did stress the need for long-term preparation and involvement by citizens in order to participate effectively. It is my feeling that a preliminary hearing of that sort, even if the fiscal information is not the hardest information, would be helpful in putting together the kind of continuing citizen effort that you would need in order to do anything effective in something as complicated as the budget process.

As a matter of fact, we feel that it would be important for local officials to be encouraged to foster an ongoing effort to involve citizens in fiscal affairs and in the budget process through advisory committees or task forces or other techniques that could proceed from the beginning-once officials start getting involved in allocating moneys. Because if you wait until just a short time before the legislative body votes to adopt the budget, you are then coming into the process at a time when all the important decisions have already been made.

Mr. FOUNTAIN. You mentioned advisory committees. It was suggested, when we extended this legislation, that we include a provision requiring advisory committees. We finally concluded that would be another layer of bureaucracy that would result in unnecessary expense.

Yet, I can see the benefit which may be derived. Let me ask you this.

In the course of your monitoring of this program, did you come across any of the areas of government where, on a voluntary basis, they appointed anybody to come in and make suggestions or to take an inventory as to the way the funds were being used ?

Ms. Rubin. Yes. Actually I am talking about voluntary advisory committees. I am not suggesting mandatory advisory committees.

In a few of the communities where members reported successful and effective citizen participation in this area, they felt that that was in part because local officials were more creative in involving the public earlier through advisory committees or task forces or neighborhood committees which could engage in a longer planning process.

Mr. FOUNTAIN. You stated on page 3, Ms. Rubin, that the League of Women Voters would support the five formula changes that have been suggested by the administration, including the lowering of the floor from 20 percent to 10 percent and raising the ceiling from 145 to 175 percent of the statewide per capita average.

I would direct this same question to the other groups represented at the panel. Would your organization support the complete elimination of the floor and ceiling constraints in the interest of permitting the formula elements to operate fully and freely?

Ms. Rubin. I would have to answer that by saying that we would need to see the effects of such changes. I feel this way even about the five formula changes. The intent of those changes seems to be very good. It is in line with our thinking, but none of us has seen the specifics.

Mr. FOUNTAIN. That is precisely the kind of discussion which I have been having with the staff. Some people seem to think that you can have hearings and the next day start a markup and come out with a piece of legislation, without realizing that we are now in the computer age, and some of these formulas are highly complicated. Without appropriate computer printouts, we have no way of knowing what the impact will be. Some of these things sound very equitable on their face, and we don't really know what the outcome will be.

In several situations we have examined, we found that certain changes which seemed in theory to be equitable, would cause substantial losses to needy governments. It is important to know what the practical, pragmatic effect of that sort of thing would be. These are some of the considerations I think we have to take into account—try to find equity, but at the same time consider what can actually get passed.

Mr. TAYLOR. Let me add something to that, Mr. Chairman.

Last time, as I remember, we tried to address that very question that you are raising.

I think we came up with the view that you did need to set some kind of cap or otherwise there would be distorted effects. But I think the last time our judgment was that the caps should be higher than 175 percent-perhaps as much as 250 or 300 percent. However, we have not reexamined that in the light of any new data so that I join with Ms. Rubin in saying that we would have to take a close look before we came down with a precise recommendation.

Mr. FOUNTAIN. Dr. Goldberg, do you recall whether or not we found in the computer printouts we have had that there would be much change if we eliminated all constraints ?

Dr. GOLDBERG. The computer simulations made in 1975 and 1976 never went so far as to completely eliminate the 145 percent upper constraint.

We did track what would happen by raising it to 160, 175, and then 200 percent. What we found, generally, is that a relatively small num

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