tremendous impact. Everything is affected by the cost of oil, including transportation, food and clothing. Many people do not realize that many of their clothese are made from petrochemicals.

It is unfortunate that when a decision is made to do something that you cannot look back in the past and recoup what you have lost. There is $15 billion worth of military equipment in Vietnam, or thereabouts, which could be used for our own defense purposes now. It was considered too expensive to bring back and, of course, under the circumstances it could not have been brought back.

However, I think you are right. These programs are not the total reason for inflation. They simply are part of the total picture.

Mr. LUCY. May I just add this, Mr. Chairman?

Mr. FOUNTAIN. Certainly, we are seeking a viable solution. We cannot go on increasing and increasing the national debt. We have to come to a day of reckoning. Otherwise there would not be any jobs that pay anything, and people will not have any economic power. We would be bankrupt. Go ahead, Mr. Lucy.

Mr. Lucy. I was going to say this. As we look at the Federal budget itself as a factor in, let's say, economic planning, and you look at those parts of the budget that exist as a reaction to congressional legislative programs which are excluded, I suspect, from the ability of the President to alter, then you have really only two pieces left. You have that piece that is the defense side, and the domestic program side. And, at least most studies show that defense spending is the most inflationary kind of spending.

Everyone is concerned with security, and so if you make that part of it sacrosanct even to the extent that you are increasing it by some real figures, then we are down to that piece of the budget that we can cut. In the estimation of many it is not what causes the real problem in terms of governmental spending.

I am not an economist, so I cannot say exactly what will work. But we do know that we have never experienced the levels of inflation that we have now. At least by all indications, what we are proposing now is not working now. This would lead me to believe that we ought to at least take a look at some other alternatives. Theoretically, the decontrol program was supposed to generate profits that would go back into domestic exploration which would cause a reduction in prices. That is not quite the case now. I think we have seen the entire energy community simply taking advantage of the situation, and taking out what profits they can.

We would certainly institutionally work with any responsible group in terms of developing something that at least has a chance of working. Right now we have nothing.

Mr. FOUNTAIN. I am delighted that we do not have the full responsibility, but these are important things for us to get out on the table. Mr. Cantor?

Mr. CANTOR. Let me emphasize and reinforce a point that you made a few moments ago, Mr. Chairman, about balancing the budget in such a sudden fashion.

We should also keep in mind from an overall economic policy standpoint that the current 1980 deficit is about $36 billion and the new budget proposals of the President are not for a balanced budget, but entail cutbacks to achieve a surplus of about $16 billion.

In an economic sense we are talking about a swing in 1 year of over $50 billion in Federal economic and job creating stimulus to the economy at a time when you pick up the newspapers every day, and particularly this morning and last night, when it is pretty well clear that we are entering a recession.

The only doubt is how severe and how long it is going to be.

When you graft this type of austerity in an aggregate sense onto 20 percent interest rates, and onto an outlook that is very, very dismal, and look at the specific cuts in terms of types of people that they will hurt, I really am hard pressed to see any even psychological advantage to any attempts to balance the budget.

Mr. FOUNTAIN. Let me supplement what I said. One of the questions which the more responsible people mentioned at the conference I attended, which was addressed to Americans was this: They were undecided about the extent to which they could depend on us, not just in times of confrontation and the possibility of war, but in terms of coordination with regard to economic problems, for example. We do not sell all our products within America, of course. There is a free trade situation in which we compete with each other all over the world.

However, there is a concern about us overseas. When we look at our balance of payments we see it is in bad shape. It has leveled off, however. That concerns our neighbors. I do not know whether the OPEC countries have used the argument about conservation primarily as a stick, or whether they are sincere. I hope they are sincere about it. And I would hope that in that area we would use the potential which we have in this country-in my opinion we have it-to be completely independent of imported oil. We have all sorts of resources like coal, wood, and synthetics. Every municipality in America could produce methane gas, for example. However, there has to be a collective effort all over America, not just the passing of laws which say they hope somebody does it. To what extent the Government would have to get into it, I don't know.

Mr. Lucy?

Mr. LUCY. The real impact of the elimination of the States' share of revenue sharing might come to this. The National Governors' Association said that 40 percent of the States' share was funneled through to the cities.

If you start from the city level and recognize that the economic base of the cities is where it gets the bulk of its revenues, then without the ability to maintain that you have a problem. I am talking about industry and the corporate community-types wanting to exist in a local community and they want certain amenities provided before they will locate in a city to give it an economic base. So, to withdraw a goodly portion of State funds which will not allow many communities to do those kinds of things is sort of a double whammy. One, it loses the money, and second it loses the service. As a result it cannot attract stable industries or businesses that would provide jobs which are constantly being lost as a result of the deteriorating situation.

We would urge the committee to take a serious look at not only the immediate impact at the State level but the trickle-down impact at the county and city level as a result of the denial of those funds for their support.

Mr. FOUNTAIN. There is no question but that some localities in every State will lose some funds if the States' share is not continued. I have always favored keeping the States in, but I am in a state of indecision at this point because of the critical financial situation which confronts

us.

You made reference to my own State of North Carolina. I might say that we did have a big surplus, but do not have it now. Like some 32 other States, we reduced taxes; 33 States have reduced taxes within the last couple of years. To some extent, some States may have boxed themselves in by passing resolutions asking for a balanced Federal budget.

Mr. Cosgrove?

Mr. COSGROVE. Mr. Chairman, let me add this. The feeling of many of us in the trade union movement is this. The revolt of the people against taxation may be against the regressive and unfair taxation which is heavily based on real estate sales taxes rather than on the more progressive forms of taxation such as you, generally speaking, see in the Federal Government. On the matter of inflation itself and dealing with it, we have had some direct control experience with our Federal employees who between 1 year and 2 years ago had to go with a 5.5-percent increase, as you are aware, when the consumer price index increase was much greater.

At the same time, President Carter saw fit to write to the mayors of the large cities and the Governors asking that they hold public employee wages at 5.5 percent. So, we have had some experience with direct controls, and while we do not think they are any solution to the problem of inflation, it may be that in the short term they would have merit, if they were combined with across-the-board controls of profits and of dividends and generally of the economic factors. The time could be used to address a national rationalization of our approach to these problems such as is envisaged in principle in the HumphreyHawkins Act.

With reference to proposition 13 from California, and now the new one that they will be facing in June as part of the primary-proposition No. 9, which is in many ways more drastic-they are going to face problems. Our judgment about that is that this is the revolt against an inequitable tax system. It cannot be construed as a desire to repeal the New Deal, or the Fair Deal, or the Great Society, or the New Frontier, or the great social and economic advances we have made.

The history of this country for about 200 years now is one of having more to devote to the public or common good and to the least fortunate among us. This can be maintained in that general direction by the production of a "bigger pie" which has been our classic approach to the thing.

With all deference to the ecologists and the necessity for cleansing the environment, we would, I think, not take the position that we want to return to a small America or an America at the level of 1900, but rather having an expanding and growing America that can meet its social and moral obligations in terms of human dignity and the purposes of this country.

Mr. FOUNTAIN. Thank you. Mr. Weiss?

Mr. WEISS. I did not want to let the occasion go by without thanking all of the panelists for supporting a piece of legislation which I have been trying to get the House to consider seriously for the last 11⁄2 years. I am talking about mandatory, across-the-board controls.

Our chances of getting that legislation passed are as difficult now as they were 18 months ago. I do not understand why, but the economists of the administration are still fighting the last economic war rather than the one coming up. Some who have left the administration have changed their position. I had occasion to listen to Barry Bosworth at breakfast this morning. He has been on record now for some time. He says that if you rely on fiscal and monetary efforts in terms of restraints to cure this problem of inflation, then you have to talk about having something like 10 million additional Americans who currently have jobs losing their jobs.

That kind of America is not one that I look forward to with any kind of enthusiasm. I would think that none of us would.

Yet, the policies we are following in this Congress are going right down that path.

I guess what is going to happen is that after the elections are over, whether we get a new President or the old President in, we will be fighting the depression instead of inflation. Maybe then we will start looking realistically as to where we are.

Thank you, Mr. Chairman.

Mr. FOUNTAIN. I want to thank the panel for its testimony.

We are delighted to have Congressman Minish with us this morning. He will introduce our next witnesses.

STATEMENT OF HON. JOSEPH MINISH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. MINISH. Thank you, Mr. Chairman.

I appreciate the opportunity of bringing before your subcommittee two of my friends, Arthur J. Holland, the mayor of the city of Trenton, one of the oldest cities in the United States. He is an individual who has done a tremendous job considering all the problems that cities of that age have. Also, we have Commissioner Richard I. Bonsal from Montclair, N.J., which is part of my district. He is a professional engineer and probably did more work on the inequity of the municipalities versus the township than any man in the country.

I would just like to say, Mr. Chairman, that while you are going to have many witnesses before you, and have had earlier, these two individuals have been in the trenches. They are really in the infantry as compared to those people that testified before your subcommittee, and while they have very responsible positions, when you get it from two men who have been slugging it out in the trenches, you know that you are getting it firsthand.

Let me apologize for not being able to stay with you. I do have another committee meeting, but it is my pleasure to introduce the commissioner of the municipality of Montclair, N.J., Richard Bonsal, and following him the Honorable Mayor of the city of Trenton, Arthur Holland, will have a few remarks to make.

I want to thank you very much.

STATEMENT OF RICHARD I. BONSAL, COMMISSIONER, AND DIRECTOR, DEPARTMENT OF PUBLIC WORKS, MONTCLAIR, N.J.

Mr. BONSAL. It is a privilege to appear again before the subcommittee for the purpose of seeking legislative correction of an inequity in the allocation of general revenue-sharing funds on the one hand to townships, and on the other hand to municipalities having other designations such as cities, towns, villages, and boroughs. The mere difference of designation has been creating severe distortions in the funding.

In my previous testimony before the subcommittee in 1975 on the general revenue-sharing legislation when it was up for renewal, I presented testimony requesting relief from this inequity but to no avail.

The following year, Congressman Minish submitted a corrective amendment to the House of Representatives, but that too failed. Since that time, with the assistance of the city of Paterson, the city of Trenton, and the city of Plainfield, and other New Jersey municipalities, various alternative avenues of relief have been pursued in an effort to have townships and nontownships compete simultaneously with each other within their respective county areas in our State-the only State which has had a longtime ongoing concern about the matter.

Governor Byrne has been supportive of these efforts for which we are deeply appreciative. I have a supportive letter from the Governor which I would like to read at the conclusion of my testimony, and then I will submit it for the record, if I may.

As we appear here today, our long-sought goal seems to be more than met by the new provision in the administration's bill which would eliminate all tiers and cause all types of local governments, except Indian tribes, to compete simultaneously with each other within their respective States.

As seekers of equity, our cup runneth over. For years, because of the difficulty in having any changes made, we have pursued a limited goal of seeking relief for the township inequity in New Jersey alone.

The administration has now responded by eliminating the township distinction throughout the entire country with the distinctions as to county areas and county governments eliminated also. This is breathtaking.

Having had so many disappointments over the years, however, we cannot help being concerned about whether there will be sufficient political support to enact the administration's new provision. This might result in the provision being amended out of the bill thereby perpetuating the township inequity in New Jersey where the problem is acute.

The township inequity in New Jersey is of a very substantial magnitude. In the four New Jersey counties of Essex, Hudson, Mercer, and Passaic, the 19 townships in these counties receive about $2.5 million per year more than they would if they were treated as other municipalities. This huge sum is at the expense of other municipalities in the four counties with the largest impact being on the cities. The losers include East Orange-$102,000; Jersey City-$151,000; Trenton