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STATE AND LOCAL FISCAL ASSISTANCE ACT OF 1972

THURSDAY, APRIL 17, 1980

HOUSE OF REPRESENTATIVES,
INTERGOVERNMENTAL RELATIONS

AND HUMAN RESOURCES SUBCOMMITTEE

OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 9:40 a.m., in room 2203, Rayburn House Office Building, Hon. L. H. Fountain (chairman of the subcommittee) presiding.

Present: Representatives L. H. Fountain, Les Aspin, Ted Weiss, John W. Wydler, Clarence J. Brown, and Olympia J. Snowe.

Also present: Representative Frank Horton of New York. Staff present: Delphis C. Goldberg, professional staff member; Pamela H. Welch, secretary; and John Faso, minority professional staff, Committee on Government Operations.

Mr. FOUNTAIN. The subcommittee will come to order. Let the record show that a quorum is present.

The subcommittee's hearings on the reauthorization of general revenue sharing will be concluded this morning with testimony from the Honorable G. William Miller, Secretary of the Treasury. We are delighted to have you with us, Secretary Miller, to explain the administration's proposal for extension of this program.

The subcommittee is somewhat handicapped in that we did not receive the administration's bill and the supporting computer information until late yesterday afternoon. Consequently, I, and I am sure other members of the subcommittee, are not fully prepared to examine all of the ramifications of the administration's bill today. We will, however, continue to study your proposal following this hearing, and the subcommittee staff will be in communication with your staff during the next week or so to clarify questions and request any additional information required for subcommittee markup.

We are pleased to hear from you at this time, Mr. Secretary. You may proceed as you wish, either summarizing your statement or reading it in its entirely. In either event, your complete statement will appear in the record.

Mr. Wydler?

Mr. WYDLER. Mr. Chairman, I do not want this to be taken as a reflection on the witness, and it certainly is not all his doing. I realize that. However, I think this is something that should be said prior to receiving the testimony of the Secretary.

I am greatly distressed by the way this program has been handled to date by the administration. I think it has been, frankly, a careless

handling of a delicate matter. I think as a result of that we have a serious question of the renewal of this program and that it has been put in jeopardy for apparently no good reason.

Almost a year ago, Mr. Chairman, we received a letter from the then Secretary of the Treasury, or we had it brought to our attention, rather, by Mr. Blumenthal, who was then Secretary of the Treasury. He explained that the program was indeed important and did indeed have to be renewed, and that the administration was aware of this fact, and that they would get the renewal legislation, as he put it, at that time, early in this year's session of Congress. They said not later than the President's fiscal year 1981 budget.

They did not do that. I tried to warn the administration and the President personally on many occasions that we could well end up in this legislation as we ended up in the countercyclical situation with too little too late. We lost that program as a result. This program is also in great jeopardy.

The bill has not been handled by the administration in a very efficient manner. I think it has caused our subcommittee a great deal of difficulty in trying to hold hearings on a program without any idea from the administration as to what they would propose. Now, as we reach the end of our hearings, we learn we are finally going to get a bill by the administration. I do not think that is the way we should be doing business here.

I would like unanimous consent to put in the record the copy of the letter from the then Secretary of the Treasury, W. Michael Blumenthal, explaining what the administration was going to do which, of course, it never did.

Mr. FOUNTAIN. Without objection, it is so ordered. [The material follows:]

5-17-79-Urig. to KK

THE SECRETARY OF THE TREASURY

WASHINGTON

MAY 15 1979

Dear Mr. Speaker:

Section 607 of the Congressional Budget Act of 1974 provides that requests for enactment of legislation to authorize continuation of an existing program should be submitted to the Congress by May 15 of the fiscal year preceding the program's expiration. This letter is to advise you that the General Revenue Sharing program (the State and Local Fiscal Assistance Act of 1972, as amended by the State and Local Fiscal Assistance Assistance Amendments of 1976), which expires on September 30, 1980, is under active review by the Administration. No decision has been made as yet to request new legislation. If a favorable decision is made, a request for renewal legislation will be Submitted to the Congress for consideration in due course, but no later than with the President's FY 1981 Buoget.

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Mr. FOUNTAIN. I understand the gentleman from New York [Mr. Wydler] has decided to retire. I am sorry to hear the gentleman is going to retire because he has been such an excellent collaborator, particularly on the revenue-sharing bill.

The situation has changed a little bit. We are now going to balance the budget.

Mr. WYDLER. I do not know who believes that. [Laughter.]

Mr. FOUNTAIN. I can understand the difficulties the administration has had in trying to balance this particular program against all of the other programs they have to consider.

Anyway, you may proceed, Mr. Secretary.

STATEMENT OF G. WILLIAM MILLER, SECRETARY OF THE TREAS URY, U.S. DEPARTMENT OF THE TREASURY; ACCOMPANIED BY ROGER C. ALTMAN, ASSISTANT SECRETARY FOR DOMESTIC FINANCE; AND ROBERT W. RAFUSE, JR., DEPUTY ASSISTANT SECRETARY FOR STATE AND LOCAL FINANCE

Mr. MILLER. Thank you very much, Mr. Chairman.

I certainly offer my apologies to you and to Mr. Wydler for the fact that we are somewhat tardy in presenting what is an important and critical program. The reasons for that, I think, could be understood in terms of the changes that have taken place and the necessity for an intensified and anti-inflation program which has also required an unprecedented revision of the budget to reflect the effort to create balance and to do so by reducing spending on programs rather than to try to do so by the revenue increases.

I hope and believe that the Congress, which has already been so responsive to that effort and which has taken many initiatives on its own to reduce Government spending, will, in fact, achieve that result.

Part of the objective in doing so, of course, is to deal with revenue sharing in a revised format which addresses the importance of the program in terms of the fiscal mismatch, adapted to the needs of the 1980's and tries to be responsive to the overall economic policy situation.

Mr. Chairman, with your permission, I would propose to introduce my testimony for the record and perhaps summarize some of the outline of the program so that we can then proceed to questions.

Mr. FOUNTAIN. That will be fine.

Without objection, Secretary Miller's entire prepared statement will be entered in the record.

[See p. 860.]

Mr. MILLER. Let me also say that, because the full text of a complicated matter has not been before you for adequate time, I would be prepared to respond to further questions at any time, to return to meet with you personally, or to support any procedure you would like now that we have the program and have staffed it and have cleared it through the administration in order to complete the procedure of your consideration as expeditiously as possible.

We are proposing this extension of revenue sharing in the context of economic policies endeavoring to achieve fiscal restraint and to take the limited resources that will be available as we try to constrain Federal Government spending and to use them in the most appropriate and effective way.

What I am going to be saying this morning reflects our efforts to adjust the revenue-sharing program for that purpose.

The current program, as we all know, has been in effect since 1972 and has involved $6.9 billion per year, of which one-third, or $2.3 billion, has been paid to State governments and two-third, or $4.6 billion, has been paid to local governments.

In the context of our present objectives, the decision has been taken that we should discontinue the State governments' share of revenue sharing on the basis that State governments have the resources and the flexibility to deal with the revenue loss and that the revenue loss in relation to their budgets is relatively small, representing about 1 percent of State revenue.

On the other hand, we should concentrate what resources we have on the local governments where the fiscal mismatch continues and where the needs are the greatest.

When the program was first designed, it was endeavoring to use the federal system to respond to a fiscal mismatch between various levels of government performance.

The burdens of service upon local governments and State governments were not always coincident with their resources and therefore there was an effort to try to achieve better balance.

Many things have changed since the program was initiated, and it should be a program subject to revision and review. The circumstances are somewhat different today. States are in a more comfortable position. The demographic changes have removed some of the burdens on local governments that result from a young population requiring education and other services. And we have more growth in the older sector of our population where more of the responsibility for social benefits and medical services falls on the Federal Government. So, there has been somewhat of a shift. As we review this periodically and have a living, dynamic program, we can try to address those kinds of changes.

Therefore, what we are proposing is that the program be extended for 5 years, a period that will allow a continuity and a clear-cut assurance of the resource availability and yet allow the Congress to look at this once again in 5 years to see if other changes have taken place and if other adjustments will need to be made.

As we have indicated, we propose to continue the traditional level of support for local governments of $4.6 billion over the full 5 years. However, we also propose to increase the $4.6 billion to $5.1 billion for the first 2 years of the program so that we can cushion the effects that will fall on local governments from the discontinuance of the States' share. This loss of revenue by State governments is likely to result in reduced State aid to local governments. So there will be a transition in order to allow the local jurisdictions to adjust their own programs in an orderly way.

We are also suggesting that there be some improvement in the allocation of payments among local governments. Generally, the formulas have worked well, but we believe that there are some adjustments that would make them more equitable.

I must point out, Mr. Chairman and members of the subcommittee, that even though I will outline these changes and indicate the reasons for them, we are not talking about very large changes. We are talking about the reallocation of perhaps $200 million in a more targeted way,

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