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ber of local governments gained roughly $150 million a year from raising the 145. percent to 175 percent. The most prominent gainers from raising the upper constraint were city-county units of government like Philadelphia, Denver and St. Louis which have no overlying local government.

In the case of Philadelphia, its increased allocation would have been mainly at the expense of Pittsburgh. Philadelphia would have gained and Pittsburgh would have lost funds.

More recently, in looking at this problem again, we have recognized that we omitted one element in this comparison. While that result would still occur today-money would flow to Philadelphia and would not flow to Pittsburgh-we now believe this is not an appropriate comparison because Pittsburgh has an overlying county of Allegheny which also receives money. If we add part of Allegheny County's allocation, in proportion to the city's share of the county population, Pittsburgh's per capita allocation would be about as large as Philadelphia's if the ceiling were raised, despite the fact that Philadelphia makes a larger tax effort than Pittsburgh.

So I think that is another element of the equity question that we must look at in evaluating the effects of eliminating the ceiling.

Mr. FOUNTAIN. Ms. Rubin, I wonder if you would elaborate on your statement on page 4 that there is mounting evidence that elimination of the county middleman would have a favorable ett'ect on central cities.

I think you are aware that the formula at the present time initially allocates funds to a county area and then proceeds to reallocate these funds directly to all of the local governments within the county area.

Consequently, it is not clear to me what you have in mind when you refer to the county middleman role.

Ms. Rubin. What we had in mind was the direct distribution to the local communities without the county. I must say that I cannot substantiate that any further than to tell you that I lave read a number of statements and there was testimony, I think, from the administration that they are looking at computer printouts to see if, in fact, this would have a favorable effect on the central cities. But I have not myself seen any printout that indicates the effect that this would have.

Mr. GINSBURG. The concept, as you probably know, Mr. Chairman, is that you could have two municipalities within adjacent counties, but because one county, on the basis of the county allocation, had far more than the others, then these two municipalities of equally low income would get sharply different amounts as a result of the first intermediate step of the counties receiving the funds. I think, as we said, we have to take a close look at what the administration has found.

Talking to some of them, there is some indication that there is some need to examine that proposition far more carefully.

Mr. FOUNTAIN. Mr. Faso?

Mr. Faso. Let me follow up on that with Ms. Rubin. The question of eliminating the county middleman, as it is called in your testimony, I presume in light of what Mr. Ginsburg said, is that you are referring to the detiering of the formula.

Ms. RUBIN. Right.

Mr. Faso. Detiering—have you seen the administration work on this which would indicate that central cities, indeed, would fare better under such an arrangement ?

Ms. Rubin. I have seen none, that is, no printout or statistics. I have heard and read comments from the administration claiming that this would be so.

Mr. Faso. That obviously would be a subject of much concern tomorrow when the Secretary comes up.

As I understand this change, all that would really be accomplished is that each community within a State will, in effect, be competing against each other instead of the current arrangement where each community within a county competes against one another.

We are concerned that the administration may be suggesting this change and the net effect may be negligible in terms of dollars shifted around.

I would add a word of caution. Before anyone jumps on board with that proposal, we should see what the changes are.

Ms. Rubin. This is why the statement indicated that we hoped you would consider this, but really we have not seen enough information ourselves to know whether in fact it would work out in the

way

it seems to be talked about.

Mr. Faso. Thank you. I think that would be a general commentary on the administration's proposal so far. Thank you, Mr. Chairman.

Mr. FOUNTAIN. Thank you.

I want to thank all of you for coming today to give us the benefit of your testimony. You have given us the benefit of your monitoring results, and they will be extremely helpful to the subcommittee. I do not know what we will finally come up with, but we thank you for your help.

Next, we will take testimony from representatives of organized labor. I would like to have the witnesses present their individual statements and then sit as a panel for questioning. It is my understanding that this procedure is agreeable to you gentlemen.

First, we will hear from Mr. William Lucy, secretary-treasurer of the American Federation of State, County, and Municipal Employees. The rest of the panel may come forward at this time, if they like.

STATEMENT OF WILLIAM LUCY, SECRETARY-TREASURER,

AMERICAN FEDERATION OF STATE, COUNTY, AND MUNICIPAL EMPLOYEES; ACCOMPANIED BY ANTHONY PATRICK CARNEVALE, DIRECTOR OF LEGISLATION

Mr. Lucy. Thank you, Mr. Chairman.

With me this morning is Mr. Anthony Carnevale, who is the director of legislation for our organization.

My name is William Lucy, I am the secretary-treasurer of the 1million-member American Federation of State, County, and Municipal Employees—AFSCME-a union made up of men and women who work for local and State government in virtually every State in this country.

Our union embraced the original concept of general revenue sharing as a device for returning Federal dollars to local and State governments when it was first proposed by the administration of President Richard Nixon in 1972. At that point we were probably the only union-certainly the only large union-to support revenue sharing. I am proud to say that this year we are joined by the AFL-CIO and virtually all elements of the American labor movement in our support for reauthorization and full funding of general revenue sharing.

Many of my colleagues in the labor movement, and some of our friends in the Congress, previously viewed revenue sharing as a threat to the important system of categorical grant-in-aid programs that were constructed by the Congress during the Eisenhower, Kennedy, and Johnson administrations. We argued, however, that the two approaches should not be mutually exclusive—that general revenue sharing represented a progressive and dependable source of funds for the provision of public services by the States and cities, while the grant programs were quite specific and targetable.

In other words, the notion behind revenue sharing was to provide a permanent and stable source of revenues for those governments best equipped to provide a broad range of services that our citizens need. It was a way to help strengthen local and State government without intruding upon the decisionmaking process at that level.

Since its inception in 1972, general revenue sharing has been a vital ingredient to the fiscal health of the 50 States and the nearly 40,000 local governmental units in this Nation. It probably has done more than any other Federal aid program to insure State and local government control—not control from Washington-over spending decisions. It has helped to guarantee a basic level of services such as health care and sanitary control, law enforcement and public protection, public education and child care, transportation, emergency assistance and the host of other responsibilities which fall upon our States, our counties and our cities.

The general-purpose nature of general revenue sharing funds has kept decisionmaking decentralized-leaving it to elected officials and administrators at the local level to set their own priorities and to assemble the proper mix of programs and services that people in their localities demand. The intent was to strengthen government closest to the people.

Given all that, I am hard pressed to understand why the present administration and the congressional Budget Committees with their repeated concern for reducing the Federal presence and eliminating waste and inefficiency-would target the State share of revenue sharing as part of a so-called anti-inflation package of Federal spending cuts.

In fact, the general thrust of the domestic budget cuts proposed by the Carter administration and by the Budget Committees is to slash general funding programs such as revenue sharing, countercyclical aid, CETA and other human service programs. These are broad assistance programs which give local and State government officials maximum flexibility in meeting citizen needs.

I do not think any responsible observer believes that the quantity of services offered by most local or State governments are unreasonable. And in the 25 years that I have represented public employees, I have

never heard anyone anywhere say that the quality of public services was excessive.

But if the Congress concurs with the budget cut proposals advanced by the Carter administration, or for that matter, those being embraced by the House Budget Committee chairman, we will be undoing a decade of effort by the Congress and Presidents from both parties to make Federal support for local and State government efforts more productive and more efficient.

I suppose it is heretical to say so, given the current mood in the Congress and the administration, but this sudden rush to balance the budget in the name of fighting inflation is really just so much bunk.

The House Budget Committee's $16.4 billion in recommended cuts cuts in aid to the States and cities, cuts in youth employment, CETA and urban development grants, cut in medicaid funding and food stamps--are going to have no significant impact on our inflation problem. The Congressional Budget Office has estimated that if all these cuts go through, they will reduce the inflation rate by about one-tenth of 1 percent by the end of 1981. These spending cuts alone, according to the Congressional Budget Office, would cost 400,000 working Americans their jobs in 1981. The President's credit and other economic plans for the next 112 years will cost an additional 1,100,000 Americans their jobs. As a consequence of current budget cuts and other policies at least 11,2 million Americans will be out of work by the end of 1981.

It is clear that the proposed budget cuts in combination with other economic policies will give the President the recession he feels he needs to fight inflation. It is equally clear, however, that when the recession comes it will eliminate any hope of balancing the Federal budget.

Apart from the reduced Federal revenues that will result from a general economic slowdown, adding 112 million Americans to the army of the unemployed will add roughly $30 billion to the Federal deficit, $22 billion in revenue lost and $8 billion in payments for unemployment insurance, food stamps and other programs that provide subsistence for those who will lose their jobs.

There is no question that inflation is our society's most important problem right now. But budget balancing at the expense of moderateincome working people, poor people, sick people and old people is no way to fight inflation. And tinkering with an effective program like general revenue sharing promises to do real harm to the quality of life in much of America, without promising any relief from the ravages of inflation.

According to a survey of 100 cities conducted by the U.S. Conference of Mayors, 49 cities in 24 States would face serious revenue losses if the State share of the revenue-sharing program were eliminated. In an interview with the New York Times, Dick Nathan, a noted public finance economist points out that the cuts included in the House budget resolution would result in a 13.1 percent revenue loss for all local governments individual case studies conducted by Nathan. Even a sunbelt city like Houston is dependent on Federal funds to the tune of 31 percent of its total revenues.

Cities and States that are in a position to do so will, of course, raise their local taxes to try to offset their losses in Federal funds. In most instances this will mean higher property taxes, the most common means

of raising local revenues. Thus, the relatively good Federal taxation flow back to local government will be supplanted by the generally regressive tax on home and personal property to make up the difference. This means more inequity heaped upon moderate income taxpayers.

But in many places that will not be possible. In many States and cities, the cuts will simply translate into sweeping reductions in the quality of health care provided, in fewer police in the community, in fewer people monitoring water quality, sewer treatment and building and fire codes. It will mean an even lower quality of public institutional care in State after State. God knows, it is a national scandal now how few resources are being allocated to care for the sick, the aging and the helpless among us.

It is popular to deal with general revenue sharing allocations for the States separately from local government assistance. The conventional wisdom, after all, is that while many American cities are legitimately in need of Federal funds, the States have surpluses.

It is a fact, unfortunately, that some Governors like to play games with their budgets-understating revenue forecasts in order to look prudent at the end of the fiscal year. This kind of game-playing by Governor Brown in California involved building up a huge State surplus at a time when taxpayers were feeling real pain. That helped create the climate for the passage of the Jarvis-Gann proposition 13 referendum in California.

But California is not America. Federal Government figures show, in fact, that very few States are carrying surpluses. Most States need these funds. The States most in need are the States least able to impose new taxes at the State and local level.

In New York State, the State's share of general revenue sharing for fiscal year 1981 would amount to about $248 million. That is more than one-third of the total increase in State spending proposed by Governor Carey in a State budget that calls for drastic cutbacks in existing programs and the reduction of the State work force by more than 9,000 workers. Such a cut in a State like New York will surely result in reduced public services and layoffs that will only translate into Federal payments for unemployment insurance and other support programs.

În Massachusetts, the State's share of general revenue sharing accounts for one-fourth of the total new State moneys for 1981.

The $110 million that is allocated for Pennsylvania each year amounts to 16 percent of the total increase in State spending budgeted there in fiscal year 1981.

The Governors of New Jersey and Connecticut have proposed tax increases to balance their budgets. But Connecticut assumes a continuation of State revenue sharing in its fiscal year 1981 budget and, without State GRS, New Jersey will certainly have fiscal difficulties.

I deeply regret the House Budget Committee's decision-evidently with administration compliance-to eliminate the $1.4 billion needed in the fiscal year 1981 budget to fund the State share. If that decision is not overturned, I foresee a fiscal disaster for many

of our States. It would also be a disaster for many local governments. A substantial portion of the revenue sharing money which goes to State governments is funneled on to the counties and cities. According to the National Governors’ Association, about $922 million, or 40.1 percent of the State

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