PAGENO="0001" REVENUE SHARING AND ITS ALTERNATI~~ / WHAT FUTURE FOR FISCAL FEDERAL1~Mr~ ~ (~ (1 1k ~ pLJ~' ~ HEARINGS BEFORE THE SUBCOMMITTEE ON FISCAL POLICY OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETIETH CONGRESS FIRST SESSION JULY 31, AUGUST 1,2, AND 3, 19G7 PROPERTY OF RUTGERS, Ttk StMI d~ ~ COLLEGE OF SOUTH JERSEY UBRIAR( CAMDEN, N. J. 08102 Printed for the uise of the Joint Economic Committee V. DOG. U.S. GOVERNMENT PRINTING OFFICE 82-9060 WASHINGTON: 1967 ~ For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 . Price 50 cents g 5 PAGENO="0002" JOINT ECONOMlO COMMITThE SENATE JOHN SPARKMAN, Alabama J. W. FULBRIGHT, Arkansas HERMAN E. TALMADGE, Georgia STUART SYMINGTON, Missouri ABRAHAM RIBICOFF, Connecticut JACOB K. JAVITS, New York JACK MILLER, Iowa LEN B. JORDAN, Idaho CHARLES H. PERCY, Illinois WILLIAM H. MOORE JOHN B. HENDERSON HOUSE OF REPRESENTATIVES RICHARD BOLLING, Missouri HALE BOGGS, Louisiana HENRY S. REUSS, Wisconsin MARTHA W. GRIFFITHS, Michigan WILLIAM S. MOORHEAD, Pennsylvania THOMAS B. CURTIS, Missouri WILLIAM B. WIDNALL, New Jersey DONALD RUMSFELD, Illinois W. B. BROCK 3D, Tennessee GEORGE R. IDEN DANIEL J. EDWARDS ECONOMISTS DONALD A. WEBSTER (Minority) SuBcoMMITT~ ON FISCAL POLICY MARTHA W. GRIFFITHS, Michigan, Chairman HOUSE OF REPRESENTATIVES SENATE HALE BOGGS, Louisiana WILLIAM PROXMIRE, Wisconsin WILLIAM S. MOORHEAD, Pennsylvania HERMAN E. TALMADGE, Georgia WILLIAM B. WIDNALL, New Jersey STUART SYMINGTON, Missouri DONALD RUMSFELD, Illinois JACOB K. JAVITS, New York JACK MILLER, Iowa CHARLES H. PERCY, Illinois HARLEY H. HINRIcHS, Economist RICHARD F. KAUFMAN, Economist [Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.] WILLIAM PROXMIRE, Wisconsin, Chairman WRIGHT PATMAN, Texas, Vice Chairman JOHN R. STARK, Ea'ecutive Director JAMES W. KNOWLES, Director of Research II PAGENO="0003" CONTENTS Page Announcement of hearings and schedule of witnesses 1 STATEMENTS MONDAY, JULY 31, 1967 Griffiths, Hon. Martha W., chairman of the Subcommittee on Fiscal Policy of the Joint Economic Committee: Opening remarks 2 Javits, Hon. Jacob K., member of the Subcommittee on Fiscal Policy. - - - 3 Maxwell, James A., professor of economics, Clark University 19 Penniman, Clara, professor of political science, University of Wisconsin - - 21 Ecker-Racz, L. Laszlo, formerly with Advisory Commission on Inter- governmental Relations 36 Ylvisaker, Paul N., community affairs commissioner, State of New Jersey - 40 TUESDAY, AUGUST 1, 1967 Harriss, C. Lowell, professor of economics, Columbia University 65 Kegan, Lawrence R., director of special studies, Committee for Economic Development 75 Netzer, Dick, professor of economics, New York University 83 WEDNESDAY, AUGUST 2, 1967 Heller, Walter W., professor of economics, University of Minnesota 107 Pechman, Joseph A., director of economic studies, The Brookings Insti- tütion 118 Stein, Herbert, vice president and chief economist, Committee for Eco- nomic Developemnt 122 Ulmer, Melville J., professor of economics, University of Maryland 128 THURSDAY, AUGUST 3, 1967 Break, George F., professor of economics, University of California, Berkeley 163 Fitch, Lyle C., president, Institute of Public Administration, New York, N.Y 165 Nathan, Richard P., The Brookings Institution, Washington, D.C 168 Somers, Harold M., professor of economics, University of California, Los Angeles 171 APPENDIX Statement of George S. Bullen, legislative director, National Federation of Independent Business, with covering letter to Chairman Griffiths 191 The Governor's Policy Statement on Federal Legislation-A Wisconsin Position to the Wisconsin Congressional Delegation, with exchange of letters between Governor Knowles and Chairman Griffiths 192 III PAGENO="0004" PAGENO="0005" REVENUE SHARING AND ITS ALTERNATIVES: WHAT FUTURE FOR FISCAL FEDERALISM? MONDAY, JULY 31, 1967 CONGRESS OF THE uNITED STATES, SUBCOMMITTEE ON FISCAL POLICY OF THE JOINT ECONOMIC COMMITTEE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice, in room S-407, the Capitol, Hon. Martha W. Griffiths (chairman of the subcommit- tee) presiding. Present: Representative Griffiths; and Senators Proxmire and Symington. Also present: James W. Knowles, director of research; Harley H. Hinrichs and Richard F. Kaufman, economists for the Subcommittee on Fiscal Policy. Representative GRIFFITHS: This morning the Subcommittee on Fiscal Policy begins hearings on the future of fiscal federalism. At this point in the record we will place the announcement of the hearings and the schedule of witnesses. TUESDAY, JULY 25, 1967 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, SUBCOMMITTEE ON FISCAL POLICY REPRESENTATIVE MARTHA W. GRIFFITHS ANNOUNCES HEARINGS ON REVENUE SHARING AND ITS ALTERNATIVES: WHAT FUTURE FOR FISCAL FEDERALISM? Representative Martha W. Griffiths (D., Mich.), Chairman of the Subcommit- tee on Fiscal Policy of the Joint Economic Committee, today announced that the subcommittee will hold four days of hearings-July 31, and August 1, 2 and 3- on Revenue Sharing and Its Alternatives: What Future for Fiscal Federalism? In announcing plans for the hearings, Representative Griffiths said: "Sharing Federal revenues with State and local governments is a vital issue deserving a full study by the Congress. This we intend to give it. The issue is much broader and much more important than simply debating any one revenue sharing plan. Revenue sharing should be seen in the context of being one of many alternative means to deal with a changing array of problems facing the Federal, State, and local governments. Alternative means that have been suggested include revenue sharing, improved or consolidated Federal categorical grants, Federal tax credits against State income taxes, direct Federal grant programs, such as for model cities, and the negative income tax or familSr allowances. Here in the Joint Economic Committee I feel that we have the opportunity to take a broad and deep view of what policy alternatives there are-and what `policy mix' may be most effective." A schedule of the first week's hearings is attached. Dates for further hearings will be announced later. PAGENO="0006" 2 REVENUE SHARING AND ITS ALTERNATIVES CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, SUBCOMMITTEE ON FISCAL POLICY SCHEDULE OF HEARINGS ON REVENUE SHARING AND ITS ALTERNATIVES: WHAT FUTURE FOR FISCAL FEIIERALISM? (July 31, August 1,2 and 3) All sessions to be held in roon~ 5-407, The Capitol, at 10:00 a.rn. Monday, July 31.-Lessons of Experience: Federal, State and Local. James A. Maxwell, Professor of Economics, Clark University; Clara Penniman, Professor of Political Science, University of Wisconsin; L. Laszlo Ecker-Racz, Formerly with Advisory Commission on Intergovernmental Relations; Paul Ylvisaker, Commissioner, Department of Community Affairs, State of New Jersey. Tuesday, August 1.-Fiscal Projections and Their Policy Implications: Fiscal Surpluses: State and Local Needs and Resources. C. Lowell Harriss, Professor of Economics, Columbia University; Lawrence R. Kegan, Director of Special Studies, Committee for Economic Development; Dick Netzer, Professor of Eco- nomics, New York University. Wednesday, August 2.-Future Fiscal Options: Revenue Sharing and/or Tax Credits. Walter W. Heller, Professor of Economics, University of Minnesota; Joseph A. Pechman, Director of Economic Studies, The Brookings Institution; Herbert Stein, Vice President and Chief Economist, Committee for Economic Development; Melville J. Ulmer, Professor of Economics, University of Maryland. Thursday, August 3.-Future Options: Other Options for Fiscal Federalism. George F. Break, Professor of Economics, University of California, Berkeley; Lyle C. Fitch, Institute of Public Administration, New York, N.Y.; Richard P. Nathan, The Brookings Institution; Harold M. Somers, Professor of Economics, University of California, Los Angeles. Representative GRIFFITHS. Throughout our history, our government system has been marked by collaboration between the Federal Gov- ernment and the States and localities. In recent years, there has been increasing discussion and agitation pointed toward altering the form and magnitude of these cooperative arrangements. Some plead for an increase in the traditional categorical grants-in-aid to which conditions are attached. Others ask either for conversion of the conditional grants- in-aid to block grants of unconditional revenue, or for new grants of this character. Some suggest other remedies for what they believe to be the ills of our Federal system on the fiscal front. What are the facts? Are States and localities really bereft of the fiscal resources to carry out their functions? Is the problem one of lack of resources at the State and local levels, or, is it inefficiency in the use of available resources? Are the categorical, conditional grants made by the Federal Government inadequate, in magnitude or are the conditions so onerous as to impede their proper utilization by State and local governments? Would our economy and our State and local governments be healthier if the Federal Government used some of its growing revenue for aid at the State and local level, or would it be more efficient to make tax reductions at the Federal level and to re- form the tax structure in such ways as to promote private initiative in solving problems, in the process providing the enlarged tax base to support needed government functions at the State and local levels? As we begin these hearings, I wish to call attention to the fact that related studies are underway by other subcommittees of the Joint Economic Committee. . The Subcommittee oii Economic Progress, under the chairmanship of Representative Wright Patman, has been investigating the needs of States and localities for capital projects over the next decade and the adequacy of financial markets to provide the resources above and beyond those provided from tax revenues. PAGENO="0007" REVENuE SHARING AND ITS ALTERNATIVES 3 The new Subcommittee on Urban Affairs, under the chairmanship of Representative Richard Boiling, is beginning a long and detailed study of our urban complexes and their problems. The Joint Eco- nomic Committee hopes to derive from these related investigations guidelines to the health of our urban economies. This week we are hearing from technical experts on various aspects of fiscal federalism. Subsequently, this, fall we shall call in policy- making officials from Federal, State, and local governments. This morning we begin our hearings by hearing from a panel of specialists concerning the lessons to be learned from past experi- ence, both here and abroad, of fiscal programs to assist States and lo- calities with their fiscal problems. Our panelists include James A. Maxwell, professor of economics at Clark University, Clara Penniman, professor of political science at the University of Wisconsin, L. Laszlo Ecker-Racz, formerly with the Advisory Commission on Intergovernmental Relations, and Paul Ylvisaker, commissioner, Department of Community Affairs of New Jersey. I want to thank all of you for being here this, morning, and I do appreciate your attempt'to help us eliminate the problems of fiscal affairs of both State, local, and national governments. I would like to say, too, that whatever you thought before, I would like to bring you a new thought before you begin. I have just come from the sacked and burned city of Detroit. In any sharing of Federal funds, I would assume that there would have to be an unconditional grant, some type of pass-through. I am. sure that for the last 10 days it has never occurred to any American that a city or any large geo- graphical area would actually change governments through violence. But I think that everybody has to consider that possibility now, and I therefore think that it makes it a little more essential that you have some type of auditing process, that money just can't be handed out.. At this point we include Senator Javits' statement: STATEMENT OP SENATOR IACOB K. ~AVITS TAX SHARING AND THE CRISIS IN ~ CITIES Senator JAvITS. The hearings starting this morning have in the last few days assumed an unexpected sense of urgency. The recent riots in our cities make it imperative that every avenue that may lead to a solution of our urban problems, however remote, be fully explored. For this reason, I urge that this aspect of revenue sharing be fully explored if these hearings are to serve an immediate as well as a long- range purpose. The questions that we must try to answer are: (1) Is revenue sharing applicable to urban problems, and (2) if so, how the question of State control over funds channeled to the cities via a revenue-sharing scheme can be resolved? It is true that mayors have been opposed to revenue sharing on the ground that the States would not give them a fair break under such a program. I doubt that this would be the case after the recent tragic events in our cities. I agree that present revenue-sharing plans would generate sums that are dwarfed by the enormity of our cities' financial needs, but I believe that we should make every attempt to find out whether or not at least part of the answer to our cities' needs can be found within the revenue-sharing concept. I think that this is a valid question to PAGENO="0008" 4 REVENUE SHARING AND ITS ALTERNATIVES raise inasmuch as years of Federal grants-in-aid programs have failed to make significant inroads into the eradication of slums, the modern- ization of metropolitan transportation systems, and other urban prob- lems. While these hearings propose to explore the future of fiscal fed- eralism, I submit that we will also be examining the future of our whole Federal system of government, for we can in no way divorce the vitality of our State and local governments from the fiscal power to carry out their programs and functions. If the power to tax is the power to destroy, then it can be rightly said that the power to spend is the power to create. It is here that our States and localities have been sadly lacking in recent years. A revenue system that grows slowly, and economic limitations on the amount of debt States and localities can incur, have steadily widened the gap between the level of services they desire and should provide and the level they can afford. The Federal Government has jumped into this breach with its superior revenue gathering powers, mainly the gradu- ated personal income tax. Through categorical grants-in-aid, the Cen- tral Government has helped support those service obligations the State and local governments can no longer finance by themselves. However, something has been lost in the process. With Federal support came Federal control over how the money could be spent. The grant-in-aid system is now a patchwork of match- ing requirements, allocation provisions, program designations, and various other restrictions. The States and localities have accepted these controls because they need the aid to finance their public services. But the acceptance of the aid and the controls that go with it have reduced the scope of State-local decisionmaking which, in turn, has reduced the - demands for vitality and creativity in their affairs. We have lived with Federal grants-in-aid for many years, addmg some here and changing a bit there, without really examining the pos- sible dangers to our Federal system in the meantime. Now as never before, we must closely examine both the benefits and the costs of this system, discover how we can improve it, and what alternatives there are for getting the job done more efficiently and effectively. Innovative and creative ability at our State and local levels of government is one of our greatest resources, and the times certainly call for the use of every means available to solve the country's great social problems. Since the administration first promoted and then discarded the idea of innovations in the Federal assistance system, Republicans have seized the initiative. I am pleased to be among the first to introduce a detailed plan for comprehensive Federal revenue sharing. In the first 2 months of this Congress alone, over 90 percent of the 100 or so sponsors of bills dealing with sharing Federal revenues have been Republicans. Republicans' faith in the ability and responsiveness of State and local governments to the needs of their people has gener- ated serious study by the Republican coordinating committee of the general area of improving Federal intergovernmental assistance. However, Republicans cannot claim all the credit. The Chair is to be applauded for initiating these hearings, and I am confident all of us at all levels of Government will greatly benefit from this thorough, comprehensive examination of the future of federalism in America. PAGENO="0009" REVENUE SHARING AND ITS ALTERNATIVES 5 (The following material is submitted by Senator Javits:) [From the Congressional Record, Jan. 18, 1967] FEDERAL REVENUE SHARING BILL ESSENTIAL FOR FEDERAL-STATE PARTNERSHIP Mr. JAvIT5. Mr. President, I understand that it is agreeable to the leadership to allow a little extra time to Senators at this moment, and I therefore ask unanimous consent that I may proceed for 10 minutes. The PRESIDING OFFICER. Without objection, it is so ordered. Mr. JAvIT5. Mr. President, I send to the desk for appropriate reference, on behalf of myself, and Senators Baker, Oarlson, Cooper, Dominick, Scott, and Young of North Dakota, a Federal revenue-sharing bill, designed to return to the States, and through them to local governments, a portion of Federal tax revenues with a minimum of strings attached. A companion measure is being introduced in the other body by Representative Reid of New York. Mr. President, I ask that the bill be printed as part of my remarks, together with specific tables as to the distributions to States and other data which imple- ment the concept of the bill. The PRESIDING OFFICER. The bill will be received and appropriately referred; and, without objection, the bill and explanatory material will be printed in the Record. The bill (S. 482) to establish a system for the sharing of certain Federal rev- enues with the States, introduced by Mr. Javits (for himself and other Sena- tors), was received, read twice by its title, referred to the Committee on Finance and ordered to be- printed in the Record, as follows: "Be it enacted by the Senate and House of Representatives of the United States of America in Coiigress assembled, That this Act may be cited as the "Federal Revenue-Sharing Act". "SEc. 2. (a) There is hereby established in the Treasury of the United States a fund to be known as the revenue-sharing fund. The revenue-sharing fund shall consist of such amounts as may be appropriated to such fund as provided in this section. "(b) (1) There is hereby appropriated to the revenue-sharing fund, out of any money in the Treasury not otherwise appropriated, for the fiscal year beginning July 1, 1968, an amount equal to 1 per centum of the aggregate taxable income reported on individual income tax returns during the preceding calendar year; for the fiscal year beginning July 1, 1969, an amount equal to 11/~ per centum of the aggregate taxable income reported on individual income tax returns during the preceding calendar year; and for the fiscal year beginning July 1, 1970, and for each fiscal year thereafter, an amount equal to 2 per centum of the aggregate taxable income reported on individual income tax returns during the preceding calendar year. "(2) For purposes of this subsection- "(A) The term `taxable income' shall have the same meaning as specified in section 63 of the Internal Revenue Code of 1954. "(B) The term `individual income tax returns' means returns of the tax on the income of individuals imposed by chapter 1 of the Internal Revenue Code of 1954. "(c) The Secretary of the Treasury (hereinafter referred to as the `Secre- tary') shall, from time to time, but not less often than quarterly, determine the amounts appropriated by subsection (b) and transfer from the general fund of the Treasury to the revenue-sharing fund the amounts so appropriated. Such transfers shall, to the extent necessary, be made on the basis of estimates by the Secretary of the amounts so appropriated by subsection (b). Proper adjustments shall be made in the amounts subsequently transferred to the extent that prior estimates were in excess of or less than the amounts required to be transferred. "SEc. 3. (a) Subject to the provisions of subsection (d) and sections 4(c) and 5(b), the Secretary shall, during the fiscal year beginning July 1, 1968, and dur- ing each fiscal year thereafter, pay to each State, from amounts appropriated to the revenue-sharing fund for the fiscal year in which payments are to be made, a total amount equal to the allotment or allotments of such State in such fiscal year under this section. Such payments shall be made in installments periodically during any fiscal year. bet not lees often th~n quarterly. "(b) From 85 per centum of the amount appropriated to the revenue-sharing fund pursuant to section 2 for any fiscal year, the Secretary shall allot to each PAGENO="0010" 6 REVENUE SHARING AND ITS ALTERNATIVES State in such fiscal year and amount (computed by the Secretary) equal to the product resulting from multiplying- "(1) an amount which bears the same ratio to such 85 per centum of the amount so appropriated as the population of such State bears to the total popula- tion of all of the States, by "(2) a number which is the quotient resulting from dividing the revenue effort ratio of such State for the preceding fiscal year by the average national revenue effort ratio for the preceding fiscal year. "(c) From 15 per centum of the amount appropriated to the revenue-sharing fund pursuant to section 2 for any fiscal year, the Secretary shall allot, to each State with a per capita annual income of individuals residing in such State which is below the average of all the State per capita annual incomes, an amount (computed by the Secretary) in such fiscal year which bears the same ratio to such 15 per centum of the amount so appropriated as the amount of the difference between the per capita annual income of any such State and the average of all the State per capita annual incomes bears to the total of the amounts of the differences between the per capita annual incomes of all such States and the average of all the State per capita annual income. "(d) Notwithstanding any other provision of this section, (1) the amoul1t of any State's allotment in any fiscal year under either subsection (b) or (c), (2) the total amount of any State's combined allotments in any fiscal year under subsections (b) and (c), or (3) the total amount resulting from combining any State's allotment or allotments in any fiscal year and any reallotment to such State under this subsection and sections 4(c ) and 5(b) shall not exceed 12 per- cent of the amount appropriated pursuant to section 2 for such fiscal year. In the event of any reduction of a State's allotment or reallotment in any fiscal year under the provisions of the preceding sentence, the Secretary shall reallot and pay, from time to time during such fiscal year, the amount of such reduction to other States in proportion to the original allotment to such States under sub- section (b) for such fiscal year. "(e) For purposes of this section- "(1) The term `State' means any of the various States and the District of Columbia. "(2) The term `revenue effort ratio', when used in relation to any State for any fiscal year, means a fraction (A) the numerator of which is the total of the revenues derived by such State (including revenues derived by any political sub- division thereof) from its own resources during such fiscal year and (B) the denominator of which is the total income of individuals residing in such State during the calendar year ending within such fiscal year. "(3) The term `average national revenue effort ratio' means a fraction (A) the numerator of which is the total resulting from adding together all revenue effort ratios of the States, and (B) the denominator of which is 51. "(4) The term `income of individuals', when used in relation to any State, means income subject to the tax imposed by chapter 1 of the Internal Revenue Code of 1954. "(5) The population of a State and the per capita annual income of individuals residing in a State shall be determined by the Secretary on the basis of the most recent data available from the Department of Commerce; but the same period shall be used in determining the population of all the States and the same period shall be used in determining the average of all the State per capita annual incomes. "(6) The term `State per capita annual income,' when used in relation t4 any State, means the quotient resulting from dividing the total income of all individuals residing in such State by the population of such State. SEC. 4. (a) Each State may use funds from any allotment or reallotment to it in any fiscal year under this Act for activities, programs, projects, and services (including capital expenditures) in the fields of health, education, and welfare. In addition each State may use a portion of such funds, not to exceed 5 per centum thereof, to provide for planning, research, and development in the fields of modernization of the institutions of State government and the improvement of governmental procedures. Toward these ends, each State may provide for planning, research, and development directed toward the establishment of active, well-staffed State budgetary offices, improved budgetary procedures and ex- penditure controls, adequate recruiting and retaining of qualified planning per- sonnel, reasomible policy coordination between the various units of government and an appropriate salary schedule for management personnel. None of such PAGENO="0011" REVENUE SHARING AND ITS ALTERNATIVES 7 funds shall be used for administrative expenses, except that each State may procure the services of special consultants and experts, or organizations thereof, as necessary to carry out the research, planning, and development authorized herein and may establish and operate programs for the training of its employees in order to increase economy and efficiency in the operations of State government and to raise the standards of performance by employees of their official duties to the maximum possible level of proficiency. "(b) (1) In order to insure that each State shall give maximum consideration to the needs of local governments within such State, the Governor of each State shall, after consultation with officials of such local governments, develop a plan prior to the beginning of each fiscal year, for sharing the anticipated funds which such State will receive under this Act in such fiscal year with its local govern- inents. In determining the anticipated allotments of such funds by such State to its local governments, the Governor shall take into consideration the popula- tion and population density of each such local government, the per capita annual income of individuals residing therein, local costs, and other relevant factors. "(2) On or before such date prior to the beginning of each fiscal year as the Secretary may prescribe, the Governor of each State shall submit to the Secretary a detailed statement showing the intended use of the anticipated funds which such State will receive during such fiscal year, including a report of such State's plan for sharing its funds with its local governments. Any State desiring to amend its reported plan for sharing its anticipated funds with its local governments may do so only after due consultation with officials of such local governments. After such consultation, any State may modify the allocation of its funds for any fiscal year by filing a statement of its amended plan with the Secretary. "(c) Whenever the Secretary, after giving reasonable notice and opportunity for hearing to a State, finds that such State, or any local government to which such State has apportioned part of any allotment or reallotment- "(1) has used any amount of such allotment or reallotment for purposes not within the scope of subsection (a), "(2) has not apportioned any amount of such allotment or reallotment to its local governments in accordance with the provisions of its plan, as filed with the Secretary, for sharing its funds, or "(3) has not obligated any amount of such allotment or reallotment within five fiscal years immediately following the fiscal year in which such allotment or re- allotment was made the Secretary shall subtract, from any subsequent allotment or reallotment to such State, a total amount equal to the amount referred to in paragraph (1), (2), or (3). In the event of any reduction of a State's allotment or reallotment in any fiscal year under this subsection, the Secretary shall reallot and pay, from time to time during such fiscal year, the amount of such reduction to other States in proportion to the original allotment to such States under subsection (b) of section 3 for such year. "(d) For purposes of this section- "(1) The term `health, education, and welfare' shall be construed in its broad- est sense so as to provide the greatest possible coverage of activities, programs, projects, and services related directly or indirectly to the fields of health, edu- cation, and welfare; except that such term shall not include any activity, pro- gram, project, or service designed to provide- "(A) administrative expenses for State and local government; "(B) highway programs; "(C) State payments in lieu of property taxes; "(D) debt service; and "(E) disaster relief. "(2) The term `local government' means any city, township, village, school district, municipality, county, parish, or similar territorial subdivision of a State, but shall not include any department, agency, commission, or independent instru- mentality of a State. "SEc. 5. (a) (1) In addition to the requirements of section 4 any State desiring to receive any allotment or reallotment in any fiscal year under this Act shall, on behalf of itself and any local government which may receive any apportionment thereof, certify and provide satisfactory assurance to the Secretary that such State and local government will- (A) use such fiscal control and fund accounting procedures as may be neces- sary to assure proper disbursement of and accounting for any allotment or re- PAGENO="0012" 8 REVEN1JE SHARING AND ITS ALTERNATIVES allotment paid to such State, and any apportionment made by such State to local governments, under this Act; "(B) make such reports to the Secretary, the Congress, and the Comptroller General in such form and containing such information as the Secretary may rea- sonably require to carry out his functions under this Act, including the state- ment of intent and report of sharing funds required by section 4(b), except that any State may make any such reports on behalf of any local government thereof; and "(C) adhere to all applicable Federal laws in connection with any activity, program, or service provided solely or in part from such allotment or reallotment. "(2) For purposes of this subsection, the provisions of title VI of the Civil Rights Act of 1964 shall be deemed to be applicable to any activity, program, or service provided solely or in part from any allotment or reallotment received by a State under this Act. "(b) Whenever in any fiscal year the Secretary, after giving reasonable notice and opportunity for hearing to a State, finds that the Governor of such State has failed to submit any statement of intent or report required by section 4(b) or that such State or any local government thereof is not in substantial compliance with the purposes of subsection (a), the Secretary immediately shall- "(1) in the case of the failure of compliance of the Governor of any State or the failure of compliance of any State, cancel any subsequent payments to such State under this Act in such fiscal year and reallot any remainder of such State's allotment or reallotment in such fiscal year to other States in pro- portion to the original allotments to such States under subsection (b) of sec- tion 3 for such fiscal year, or "(2) in the case of the failure of compliance of any local government of any State require satisfactory assurance that such State will cancel any sub- sequent payments to such local government under this Act in such fiscal year and reapportion any remainder of or such local government's apportionment to other local governments of such State in proportion to the original appor- tionments to such local governments under the State plan reported to the Sec- retary pursuant to section 4(b) for such fiscal year. "SEC. 6. The Secretary shall report to the Congress not later than the first day of March of each year on the operation of the revenue-sharing fund during the preceding fiscal year and on its expected operation during the current fiscal year. Each such report ~hall include a statement of the appropriations to, and the disbursements made from the revenue-sharing fund during the preceding fiscal year; an estimate of the expected appropriation to, and disbursements to be made from, the revenue-sharing fund during the current fiscal year; the use by each State of the funds which it received under this Act during the preceding fiscal year and the amounts distributed by each State to its political subdivisions; and any changes recommended by the Secretary concerning the operation of the revenue-sharing fund. "SEC. 7. The Appropriations Committee and the Finance Committee of the Senate and the Appropriations Committee and the Ways and Means Commit- tee of the House of Representatives, respectively, shall conduct a full and complete study at least once during each Congress with respect to the oper- ation of the revenue-sharing fund, the activities, programs, projects, and serv- ices provided by the States from allotments and reallotments received pursuant to this Act, and the manner of the distribution of funds by each State to its local governments, and report its findings upon such study to each House, respectively, together with its recommendations for such legislation as it deems advisable at the earliest practicable date. This section is enacted by the Con- gress as an exercise of the rulemaking power of the Senate and the House of Representatives, respectively, with full recognition of the constitutional right of either House to change such rules (so far as relating to the procedures in such House) at any time, in the same manner and to the same extent as in the case of any other rule of such House." The explanatory materials are as follows: PAGENO="0013" 5 0 C) )< ~ .2 0 = < .5 S o = Cl) 0 0 Cl) S 0 C.) SHARING S ~ 0~*- REVENUE 9 AND ITS ALTERNATIVES ~OOW~©~ ~ (NC'~Lt)(D ~ ~ COC(~,~~~) (~ ~ .5 5 - (NLt)OOOWCO~ of HHH~ HHH~ 1::::::: ~ 9.-~.(Nu~ ~ .5 ~ OS (N (N CO (OLC)(N - 8 C~J(N (N (N (N (N (N C~) C~) E ~ 03 C.) C,) E ~ 01c0r- O~ 0 - Cl) >- S ~ >- C) =55 >- PAGENO="0014" 10 REVENUE SHARING AND ITS ALTERNATIVES LCCCCC.)CC) ~ r~a~- 0) - ~ CDCOC')CCC~ -CD~CO~CC)~ C)CC ~ DC.) C)C'JLC) CO CO r'-~C) -CO C'~CDL(C - CC) OCCt) CO C~ CC) -~ c~ ~ .CC ~ co.9 CC CCC) ~ 2 - ~ 0000 ~ ,-~.4 - ~ ~ a r~c~ ~ CO -~ N.~ ~ ~ N.C') .E u C) C)~LC)~CC~ ~ E ~ CC ~ c C CO ~COCOC~COCOC~-CCDC~ ~ CC2 ~ ~Dr.. CO C) a~o-;.--;c'r ~ CC CC f0~ ~ o~ OC/) ~ o 2 CO-~C OC))C~ E ~- ~ CC C.~ ~ CC). ~.CC C) C%) C.) C.) C.) C.) C.) .~ *.~ C~) C)5 - C) CO - >.C- >- CC - CO~C)COCOCQCO0CCC0C E 2 E~ CC ~ 0) C) Lt0C0C000t~ CC 2C.) C) ~ E C)- ~ ~ .E ~ 2CC) E CDC~.CO0)C)~~CC)r.. C.) C') C)E CC~ .~ <2 CC) CC... C') ~ -C.-)04CCC C) ~C) 0)COC)CO0)COCO00COCO,-CCOC.C~~ C.~ CC CC E E ~2 CO. >.~*~; -- CC. 22>. ~ C.) CC~ ~~.COCO~C0c0COL)CC)CC)0) ~2= 00) ~ ° ~ (02 ~-CC) CC) .~ ~ _;,_;._; - C)) ~ ~)CC ~ E - CC)COCOCOCOr.0CP...~CQ CO 0 ~C) COCt~CDC')C0O ~ E .2 C) CC 2 CO W ~ C.) CO ~C.) -0)0CC.) ~ C.N.C0C~) - r..C)C~.C) C')~ (CCC C.) CO > o, r-.Ct) 000)00 u, CO CC) CC) C.) C) CC ~ CC- o ~CCCC ~ C) CCOCC .~J 2CC.~ C) C)) 0 0 CC CO~QCOC~J0) ~ ~CCr..COC.J.C-o~CDCO0C00)C.) I- C') ~ C.) 2 -- -~ C.)c.)c.j ~ ~ ~ CO :C~CC.f)C.j) C. C.)~ 00000 (`4 ~ (000 COC.) CC) ~CC)c0C..CO000 C.) C')C'JC')~ PAGENO="0015" INDEBTEDNESS OF STATE AND LOCAL GOVERNMENTS BY TYPE OF DEBT, 1952-65 [In millio ns of dollarsi Item 1964-65' 1963-64' 1962 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 Total 99, 512 92,222 80,802 75,023 69,955 64,110 58, 187 53, 039 48, 868 44,267 38,931 33,782 30, 100 Long term 94,204 87,527 77,067 71,540 66,801 61,127 55,737 50,845 46,775 42,272 36,898 32,004 28,720 ~ Full faith and credit-.. - 56,417 53,266 48, 185 44,664 41,650 39,263 35, 844 32, 577 31, 815 29,325 26,992 24,273 22,436 Nonguaranteed 37,786 34,261 28,883 26,878 25,151 21,864 19,893 18,268 14,960 12,947 9,905 7,731 6,284 Short term 5,309 4,695 3,735 3,483 3, 154 2,983 2,450 2, 195 2,093 1,995 2,033 1,778 1,380 Net long-term debt_ 85,942 79,950 71, 181 65,812 61, 596 56,361 51,297 46,678 43,217 38,502 33, 182 28, 553 25,513 ~ Data for fiscal year ending in the 12-mooth period through June 30. Data for 1963 and earlier years Source: Department of Commerce, Bureau of the Census. include local government amounts grouped in terms of fiscal years ended during the particular calen- dar year. I, I~ PAGENO="0016" 12 REVENUE SHARING AND ITS ALTERNATIVES -~ *~ ~ c~ ~ ~-.E E L&.C~ L2~ ~-.E t~o~ ~:- ~ E cj~ -J = C,) > C,, -J U- C,, 0 -J = 0 0 0 0 = 0 0 U- = C,, C/) = -J = -J 0 f-I, - C%4C/~C~J -~ c~-~ COO CI,COLC~ CO CO ~ CO CO (OfI, ~COf-fl.-~-~ N-CO COO CO Cl) CO CO N- 0 CO CO -CO~F--CO4-cO--~oLt - ~ -~ coco mcc500 cO~CO r-~~i-oooooo N- I) (0 C~JO ~ ~ - C~) C~L() CON- C) ~ ~L -~ ~ ~ ~ ~ ~ ~ ~ ~ 0 N- ~Lt) (0 C~O © © (OCI, LI) NJ `-~O N-N-LI) N-CO Cf~-© ~ 00) LI) N) N) N- t-N)CO N- N-CO N- COO 00 COLt)00 coco r- N)N-© c'~ ~ o ~ ooa ~ N-- ~© N- N)N- N- ~ Cl) N) ~ N- N) C~ C)) COLIC 00 C~) N) C)) CC) Cl)L() C~)N- ~ COO N-LIC0O N-COLIC LI) CC) COLI)C0 LI) ~ (1)00 CCLI) LI) N-C) N- ~CC)~ LI) C) COL1)LC) CC)C)LC)CO COO CCCC),-000 `>"° d~o~_~o E -~ ~ ~ ~ ~ 5 ~ 25~2~z~2 E CC -~ ~ 0) = C, L-o L~ O~~E ~ LC~ O~O. ~:- ~ ~E ~ L~ ~. C,, C-, 0 E E C-, E 0 C/C PAGENO="0017" REVENUE SHARING AND ITS ALTERNATIVES 13 ~O C~)LC).-~'.O .-~ 00 ~~0O CC~J'-~© C0)L~) C~0~0OLC)O~ ~+-~ W~~~LC) - - ~ ,c~, 00 I ~~CD 00 00 ~00C.J ``U)' ~ ~ - Co 0)ICc~ I I - I - 5, `III',,,, :1: : f~%C~J C~J ~ C~) C~0~-~ U) ~ ~ a~C'400 f~. OC%J00 ~ CJ~If)00U) CI)C~J L~ ~ C,, ~oCor~-(D~ 00- -C)C~J ~ ~00C~)C~J CC~00 C~U)C) C0~ N.LC) CC)C) ~ ~00 ~ ~ ~26~ ~ - - S _J Co w Or) C~0)O0(0~ - C~J00 U) - ~ 00 0)00 Cl)~4 U) ~ LONCO -O0C~4 C') ~.- 0)0) I ~ ~ 20000~0~2 Cl) I ~ ~ ~.2")°~. ~ ~ ~ ~ Cl) W O00)~ ~ Ooc'Joo~ ~ooor~ - 00c')Ofl 0000000 C')00C~j~C%4O00O QU) ~ ~ C') ~W~COU)C') ~ ~ ~ 5 - Cl) < ~ - .0 - c ~ ~X 8 ~ ~~~~C')U) - S ~ I;;' I-.' .-o~ c~i~ ~ .**~..* . C,; ~C0 ~ 00f~C~~Co o 03.2 ~ = ~E aUco o~ ~ ~0~j ~- ~ o.2 2~ ~ ~ ~C0CIC ~ g.o> <