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share of GRS allocations in fiscal year 1980 was passed through to local governments. This is most common in those States that have hardpressed, older urban areas, but it is not limited to those States.

New York Governor Carey has said that if general revenue sharing payments to the State are cut off, then the State of New York should cut its own revenue-sharing program to urban areas. That could cost New York City alone over $37 million.

Virtually all of the $91 million in State GRS funds for Ohio in fiscal year 1980 were earmarked for local aid, mainly public school assistance. That State has no budget surplus, which means the cuts could not be absorbed by the State.

In Pennsylvania, again, nearly all of the State GRS money is allocated to local governments, mostly to school programs—$70 million. But Pennsylvania also passed on $14 million for local sewage treatment, $3 million for local public health programs and $24 million for county government programs. Pennsylvania has no budget surplus.

Wisconsin gave its entire $50 million in State GRS funds to school programs, the biggest share to the troubled school system in Milwaukee. The State faces a deficit for fiscal year 1981. If GRS State funds are cut out, the schools will lose those funds.

In Maine, $13 million in State GRS was used to help fund the teachers retirement program, essentially a local problem. Those liabilities will continue even if the funds are wiped out, so the State, which has no budget surplus, will have to cut elsewhere.

In Chairman Fountain's home State of North Carolina, the State has no budget surplus. They have used much of their $55 million in State GRS for textbooks, schoolbus purchases and maintenance, improving local sewage treatment capabilities and other local government functions.

These cuts would work a hardship on local and State governments in the best of economic times. But now the administration seems likely, at last, to get its long-sought recession, the States and cities will face considerably greater costs for unemployment compensation, social services, and welfare aid.

That seems certain to be accomplished by higher unemployment, a fall-off in local income and sales tax revenues and higher costs for everything government buys because of inflation. I cannot think of a worse time to revoke the commitment made by the Federal Government to provide a steady and stable flow of Federal dollars to assist State and local government in meeting their obligations.

The administration has proposed $500 million as a substitute for the State share of general revenue sharing. It is no substitute at all. It is only in the arithmetic of the new thrift that $500 million equals $2.3 billion. It should be noted in addition that the $500 million would have to substitute for all cuts to aid to State and local governments included in the proposed budget of the congressional Budget Committees and the administration. The real cut in aid to State and local governments included in the President's and the Budget Committees' plans is $7 billion.

Finally, the targeting in that proposed $500 million program is turning out to be less than we originally supposed. If the moneys are allocated on the basis of the administration's revenue sharing formula, the money will be spread far too thin to make up for the massive cuts in hard-pressed urban areas which are scheduled to occur in the President's and the Congress current budget plan for 1981.

As I mentioned earlier, general revenue sharing represents a progressive form of local government taxation not available in many States. In some respects it has served as a lever to encourage the reform of regressive State and local tax structures.

In our testimony supporting the original general revenue-sharing program in 1972, we proposed establishing a formula to reward States with a better-than-average reliance on progressive income taxes, and a less-than-average reliance on regressive sales and property taxes. While there have been some improvements in some areas, State and local tax systems remain, on the whole, extremely regressive. We support further attempts to prod States and localities into promoting progressive taxation methods.

We believe there is a need for tighter oversight of the use of revenue-sharing moneys, to make certain that the funds are not being misused or wasted. We support the establishment of State oversight commissions to recommend alternatives where problems develop around the financing of services or financial management.

With regard to the allocation formula used under general revenue sharing, we favor raising the ceiling on the maximum allowable revenue-sharing payment from 145 percent of the average statewide per capita allocation to 175 percent. Cities such as Baltimore, Philadelphia, and Detroit, currently in desperate need of more State and Federal aid, would see their revenue sharing payments increase with enactment of this provision.

We wholeheartedly endorse a countercyclical aid program within the scope of general revenue sharing to increase aid to States and localities most affected by economic slowdowns. It may be wise to build in some sort of formula to allocate the State share, or some portion of it, to those States who are most in need—although I know the difficulty of getting the full Congress to agree on such a formula.

Since the financial strain of a slowed economy varies from State to State and locality to locality, a countercyclical program could effectively target funds to the most distressed jurisdictions. A countercyclical title within the General Revenue Sharing Act, more importantly, would make permanent the Federal Government's commitment to aid financially troubled States and localities.

I would like to emphasize the importance of upholding the multiyear entitlement features of the general revenue-sharing program. Nothing could more effectively undermine the program's usefulness than could subjecting funding levels to yearly appropriations. Yearly appropriations would prevent State and local governments from including general revenue-sharing funds in their proposed spending plans until funds were actually appropriated. With funding levels subject to yearly fluctuations, general revenue-sharing allocations would be treated as windfall gains and might be spent inefficiently. If the entitlement features of the program are to be dropped, they ought, at a minimum, be replaced by forward funding of the program to allow the States some time to plan for the most effective use of their Federal dollars in combination with their own revenues.

We thank you for this opportunity to express our views to the subcommittee about this vital piece of legislation. Our intimate involvement with the workings of States and localities, and the link between the program and the livelihood of many of our members, make our commitment to the passage of a comprehensive and equitable general revenue-sharing program a steadfast one.

Mr. FOUNTAIN. Thank you very much for your statement.

Our next witness is Arnold Cantor, assistant director of the department of economic research, American Federation of Labor and Congress of Industrial Organizations. He is accompanied by Robert McGlotten, associate director, department of legislation.

Both of these gentlemen are representing the AFL-CIO. We are delighted to have them with us this morning.

STATEMENT OF ARNOLD CANTOR, ASSISTANT DIRECTOR, DEPART

MENT OF ECONOMIC RESEARCH, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS; ACCOMPANIED BY ROBERT MCGLOTTEN, ASSOCIATE DIRECTOR, DEPARTMENT OF LEGISLATION

Mr. CANTOR. Thank you very much, Mr. Chairman. Mr. McGlotten had a meeting, but hopefully he will be back before I complete our testimony.

My name is Arnold Cantor. I am the assistant director of the department of economic research of the AFL-CIO.

We are pleased to appear in support of a reauthorization of the general revenue sharing program for 5 more years at the present $6.85 billion annual level.

Recession, unemployment, rampant inflation and taxpayer resistance at all levels of government have resulted in an enlarging of the Nation's public investment gaps over the past decade. The prospects for the next few years point to even greater strains on the fiscal capacities of State and local governments, and there is a clear need to at least maintain, if not expand, those programs that are preventing a worsening of the situation.

As an example of this need, we should like to call attention to the data from the U.S. Department of Commerce—attached to my statement-showing the dismal record of State and local public construction over the past decade.

Mr. FOUNTAIN. Without objection, the data referred to will be entered in the record at this point.

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Note:

Outlay figures include grant-in-aid funds from the Federal Government

e

Estimate

SOURCE:

U.S. Department of Commerce, Bureau of Economic Analysis,
Goverment Division

Mr. CANTOR. According to the Commerce Department, in 9 out of the past 11 years, the real volume of outlays for State and local public construction declined. In 1979, State and local governments spent $40 billion on public construction, including Federal aid. After adjusting for inflation, this represents a rate of 32 percent below 1969 levels. In real terms, on a per person basis these figures show that public construction represented $151 per capita in 1969, compared with only $95 last year. And these figures do not reflect the recent huge increases in interest rates and their impact on current State and local construction activity and the likely further depressing effects due to the inability of State and municipalities to borrow to finance needed public facilities.

Many communities that were particularly hard hit by the 1974–75 recession continue to experience stagnation and decline. They have still not recovered and remain extraordinarily vulnerable and ill equipped to deal with another economic downturn.

An examination of unemployment data for the Nation's metropolitan areas highlights the continuing economic problems. The most recent figures-December 1979—show that there still is a large number of areas with extraordinarily high rates of unemployment. In December 1979, when the national average rate of unemployment was at 5.9 percent—it is now 6.2 percent-62 metropolitan areas recorded unemployment rates of 6.5 percent or more and 18 of these metropolitan areas had unemployment rates of 8.5 percent or more. This is shown on table 2 which I have submitted for the record.

Mr. FOUNTAIN. Without objection, a copy of table 2 will be entered in the record at this point.

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