,_ ._ ,,,_ ._,,_...,.,..._...__.... _......_,_.....~.... -.“.,.........._._....4w_....__.._~..._.._,....,,....__.......». s.....- LC »»ua/3: HJ 275 A 75 -113 E ‘ GENERAL REVENUE SHARING: “A REVIEW or (THE CURRENT STATUS AND ARGUMENTS PRO AND con As:-MNGON 1 vb §:‘«M1\!ER$l"TY NOV 17 1989 Li;-as E-:i3?§’?““*‘:-‘*3 Louis. M0- 0 : a ,_ . , .._..._. .- ....,‘~»-........A~ ....-.....,.,,...................._...............,.N._..z -,.g_.,,_,.3_~___,_.‘,.....;,__.L__,,__’__‘,." %.._....u.....,........o....,....'....g..42..-.....-s-an. 4».-... ~ -—.-&:..-ale.:iU¥Am4u.~..._-..._:-1¢.ro.¢,;-,3“ A A 7 GENERAL REVENUE SHARING: A REVIEW OF THE CURRENT STATUS AND ARGUMENTS PRO AND CON Table of Contents Introduction. . . . . . Position of the Ford Administration . . . . . . . . . . . . . .. .2 Legislative Efforts to Amend the General Revenue Sharing Law: 93rdCongress..... . . . . . . . . . . . . . . . . . . . . . . 94th Congress: The FordAdministration Proposal........................... 5 Other Legislative Proposals..............,....... . . . . Arguments in Favor of General Revenue Sharing....................6 Arguments Against General Revenue Sharing.......................l3 Conclusion.....................................................21 Appendixn--Bills Introduced During the 94th Congress Which Will Amend the State and Local Fiscal Assistance Act of 1972. . . . . . . . 22 GENERAL REVENUE SHARING: A REVIEW OF THE CURRENT STATUS AND ARGUMENTS PRO AND CON Intro duction: General revenue sharing was established under authority of the State and Local Fiscal Assistance Act of 1972 (Public Law 92--512) which was approved on October 20, 1972. This legislation appropriated $30. 2 billion in Federal revenues, to be derived from individual income tax receipts, to be distributed among qualifying State and local units of government during the five-«year period beginning January 1, 1972 and ending December 31, 1976. This program has now been in effect for three years, and through the April 1975 quarterly payment some $18.9 billion had been disbursed by the Treasury Department to about 39, 000 State and local units of government in the 50 States and the District of Columbia. ‘ It is expected that the 94th Congress will give considerable atten—- tion to such questions as: Should the general revenue sharing program be allowed to expire on December 31, 1976‘? Should it be continued for a limited period of time? Or should it be established on a perma- nent basis‘? If Congress decides to extend the general revenue sharing program, it will have to decide whether it shouldbe enlarged, whether the formulas governing distribution of funds should be revised, whether the Federal "strings" or controls incorporated in this legislation should be eliminated or strengthened, or how it may be amended in other Ways. CRS--2 Position of the Ford Administration: President Ford has consistently supported proposals which would share a portion of Federal tax revenues with State and local govern- ments with relatively few Federal "strings" attached on the expendim ture of these funds by recipient governments. As far back as the 90th Congress he sponsored his own bill (H. R. 4074) in the House of Re- presentatives which authorized a form of Federal tax sharing with State and local governments. While a Member of the House of Reprev- sentatives, he supported the Nixon Administration's general revenue sharing proposals submitted to the 91st and 92nd Congresses and co-— sponsored each of the bills introduced incorporating these recom- mendations. He voted for passage of H. R. 14370---the Stateand Local “Fiscal Assistance Act of 1972----which ultimately became law on Oc-— tober 20, 1972. While serving as Vice President and as President, he has continued to support this program and has favored extension of this legislation. Vice President Nelson A. Rockefeller, while serving as Governor of the State of New York, was one of the leading advocates of general revenue sharing legislation as a means of assisting financially dis—- tressed State and local governing units. He conducted a massive com- paign to mobilize support for Federal revenue sharing legislation, working with the Republican Governors Association and the National Governors Conference. He helped to organize the National Citizens Committee for Revenue Sharing which was a bipartisan citizens lobby CRS-3 composed of governors, mayors and other prominent citizens to work for immediate and favorable enactment of revenue sharing legislation. He met with members of the New York Congressional delegation, de-- partment heads of the Federal Government and the President seeking support for revenue sharing, and he sought allocations of $10 billion annually for this purpose rather than the $6 billion now provided by law. Legislative Efforts to Amend the General Revenue Sharing Law: 93rd Congress: During the 93rd Congress a number of bills were introduced which would have extended the general revenue sharing program, or which would have amended this legislation in other ways. One of the major bills introduced during the 93rd Congress was H. R. l6330i sponsored by former 4 Chairman of the House Ways and Means Committee, Representative Wilbur D. Mills, and other Mem- bers. This committee had legislative jurisdiction over the State and Local Fiscal Assistance Act of 1972 which was enacted by the 92nd _1__/ Congress. _1__/ Under provision of House Resolution 988, committee jurisdiction in the House of Representatives over general revenue sharing legislaw tion was transferred from the Ways and Means Committee to the Government Operations Committee, effective at the beginning of the 94th Congress. However, inthe Senate, the Finance Committee will continue to exercise jurisdiction over this legislation. CRS-4 This measure would have extended the general revenue sharing program ‘for two additional years beyond its termination date-—-to December 31, 1978. An important change incorporated in this proposal provided that effective on January 1, 1975 only local governmental units would re- ceive assistance under this legislation, with State shares (which cur—- rently comprise one-third of the total amount distributed among all governmental units) to be allocated among local governments. This measure also made it possible for those local governments suffering more severe financial problems to receive advance payments of part or all of their entitlement for two entitlement periods following the current entitlement period. None of the bills introduced during the 93rd Congress received any “Congressional action. However, a provision was added to the Dis- aster Relief Act of 1974}! which will protect communities from a loss in general revenue sharing funds as a result of a major disaster. This legislation provides that in the event some of the data which are used to calculate general revenue sharing allocations of a governmental unit are changed as a result of a major disaster in such a way as would result in a reduction of its revenue sharing entitlement (for example, a loss in population), the Secretary of the Treasury is authorized to disregard such changes for a period of five years. __l_/ Section 414(0) of Public Law 93-288. CRS--5 94th Congress: The Ford Administration Proposal: In his message transmitting the Federal Budget for the fiscal year 1976, President Ford stated that he would submit to the 94th Congress proposed legislation which would extend the general revenue sharing program through the fiscal year 1982. The cost of extending this pro—- gram for this additional period of 5 3/4 years is estimated at $39.4 billion, with outlays increasing by $150 million annually until they reach a level of $7. 2 billion by fiscal year 1982. The Administration's pro-- posed renewal legislation is expected to encourage greater citizen par- ticipation in decision-making at the local level, the easing of reporting requirements by State and local governments, and an increase in the ceiling now imposed on per capita allocations to governmental units in an effort to shift more funds from more affluent communities to poorer jurisdictions. Final details of this proposal are being worked out by an Administration--appointed task force. It is expected that Pre-- sident Ford will submit his recommendations to the 94th Congress for considerationland action in the near future. Other Legislative Proposals: At this writing a number of bills have been introduced during the 94th Congress which will continue the general revenue sharing pro-— gram beyond its expiration date of December 31, 1976 or which will amend the State and Local Fiscal Assistance Act of 1972 in other ways. A brief summary of each of the bills, we have been able to identify, is given in the Appendix at the end of this report. Up to the present time no action has been taken by Congress on any of these measures. CRS--6 Some of the arguments Voiced for and against the general revenue sharing program are discussed below. Arguments in Favor of General Revenue Sharing: Proponents of general revenue sharing credit this legislation with easing the financial plight of State and local governing units. It has thereby enabled them to bring spending more closely in line with in- come. It has helped to stabilize taxes in many States. It has enabled State and local officials to hold down the expansion of regressive pro-- perty taxes, and some of these governing units have been able to re- duce their taxes or at least they have been able to avoid imposing any additional tax increases. The Office of Revenue Sharing's latest actual use report covering Entitlement Period 4 (fiscal year 1974) re- ports: 1/ Regarding the impact of GRS_ funds on taxes, there were marked differences between the State and local government levels. Replies from governors indicate A that 60 percent of the States were able to reduce taxes by virtue of GRS funds and 20 percent were able to prevent new taxes. At the local government level, 35 percent reported GRS receipts had enabled them to prevent new taxes while 34 percent reported local taxes had been kept at prior levels. A significant number (27 percent) reported GRS monies had pre-- vented imposition of new taxes. 3/ Similarly, general revenue sharing has enabled State and local governments to avoid adding further to their burden of debt. Again. the Office of Revenue Sharing reported: _l_/ GRS denotes General Revenue Sharing. 2/ U. S. Treasury Department. Office of Revenue Sharing. General " Revenue Sharing: Reported Uses, 1973-1974. Washington, U. S. Govt. Print. Off., February 1975, p. viii. CRS-7 An overwhelming majority of both State and local governments (84 percent) reported that GRS funds had enabled them to avoid incurring new indebtedness, or reduce the level of new indebtedness. _l_/ However, advocates of general revenue sharing cite the following State--local financial conditions which make continuation of this pro- gram imperative: State and local government costs have increased markedly, pri-- marily due to inflation which is eroding the full benefits of this legis-- lation. As a result, States, counties and cities find that their budget dollars now buy far less in goods and services than when revenue sharing was enacted in 1972. For example, on the basis of consumer ‘price increases during 1974, inflation was running at an annual rate of 12. 2 percent, which is the largest yearly increase since 1946. For the fourth quarter of 1974 this rate had increase further to 14. 4 percent (on a seasonally adjusted annual basis). The Advisory Commission on Intergovernmental Relations, in its report issued reevaluating this program, has stated that inflation cut the buying power of the 1974 revenue sharing distribution of $6.05 billion to about $5. 5 billion. g_/ In addition, State and local revenues are not reaching anticipated levels _1_/ Ibid. ?_/ U. S. Advisory Commission on Intergovernmental Relations. Gen-v eral Revenue Sharing: An ACIR Re-Evaluation. Washington, D. C. , October 1974, p. 13. CRS--8 due to the present economic downturn. As a result, State and local budgetary surpluses, which reached their highest levels in 1972, have been declining rapidly. Furthermore, it has also been pointed out that if the surpluses are examined, it may be seen that they include significant amounts in social insurance trust funds which are not available for operating expenditures. If such pension and other trust fund surpluses are excluded from these totals, we may see that, on a national income and products account basis, the budget surplus of $12. 3 billion reported for calendar year 1972 is reduced to $4. 0 billion; similarly, the $9. 2 billion surplus for 1973 is reduced to $.l billion; and the surplus of $1. 7 billion estimated for 1974 is reduced to a deficit of $8. 0 billion. It is now reported that about one-third of the nation's governors are seeking tax increases this year. _l/ A recent issue of the Survey of Current Business gives the fol- lowing pessimistic picture of State-local finances for the current cal- endar year (1975): Sizable deficits are likely to emerge in 1975. Expenditures will continue to rise, mainly due to wage and price inflation; the growth of own—- source revenues will remain depressed, al- though some states might increase taxes if Federal taxes are reduced; and Federal grants may not fill the gap. g_/ __l_/ One-third of States Planning to Raise Taxes This Year, Weekly Bond Buyer, January 20, 1975, p. 12. _f;2_/ U. S. Department of Commerce. Survey of Current Business, J anu- ary 1975, p. 26. CRS-9 General revenue sharing has helpedto correct the fiscal imbalance in our Federal system of government. This imbalance is due primar- ily to the fact that the fiscal base of the Federal Government, which places primary reliance on the income tax will grow as the economy expands. The fiscal base of State and local governments, however, which depends principally upon property and sales taxes to finance their programs, does not have the same strength or capacity for growth. Since State and local demand for goods and services has in- creased at a more rapid rate than that of the national government, and since the Federal Government enjoys the special advantage of re-- latively high income tax rates, it is argued, it is only fair that the Federal Government continue to return a portion of its tax revenues to needy State and local governing units. Such action, it is claimed, has helped to restore balance in our Federal system of government. General revenue sharing returns money, power and decision--mak~ ing to State and local units whose officials are most familiar with their their own particular needs and problems and who can make the wisest use of these funds. It isa Jeffersonian concept of democracy which states that the best government is that government closest to the people. Greater flexibility is thereby afforded State and local leaders to utilize these funds for those purposes which they consider to be of the highest priority. As Secretary of the Treasury, William E. Simon, stated in his testimony before the Senate Subcommittee on Intergovernmental Relations, "there is no way that the Federal Government can spend CRS -- 10 this money more wisely than the local governments that see and feel 1/ the needs of their citizens daily. " ‘- State and local governing bodies have been accused of not using these funds in the wisest way. However, the following counter argu- ment has been offered. Statistical data demonstrate that a large proportion of total State and local outlays over the past years has been utilized for educational, health and welfare purposes. For example, in the fiscal year 1973, about 54 percent of total State and local government direct general expenditures was disbursed for education, public welfare, health and hospitals, and housing and urban renewal programs. For supporters of general revenue sharing, these facts indicate that State and local 4 officials are cognizant of the urgent needs of their citizens in these areas and that they are attempting to meet them. According to reports published by the Office of Revenue Sharing on actual uses of general revenue sharing funds, State governments spent 65 percent of their allocation, received for the period from January 1, 1972 through June 30, 1973 and 52 percent for fiscal year 1974, for educational purposes. Advocates assert that this has brought about an improvement in our nation's schools. Similarly, 44 percent of the total amount received by local govern» ments during the first 18 months (January 1, 1972 through June 30, 1973), and 36 percent during the fiscal year 1974, was spent for public 1/ U. S. Congress. Senate Committee on Government Operations. Sub- " committee on Intergovernmental Relations. Hearings. Revenue Sharing. 93rd Congress. 2nd Session, Washington, U. S. Govt. Print. Off., 1974, Part 1, p. 4. CRS -- ll safety. It is contended that these funds have contributed toward a more effective and modern police and fire department for many com-- munities. Public transportation systems have also received a "shot- in--the arm" from this program, since local governments spent 15 per- cent of their allocations for the first 18 months of the program and 19 percent for the fiscal year 1974. for this purpose. In some cities, revenue sharing is credited with keeping antipov- erty programs alive, and in others, these funds have permitted existing projects to be expanded. In still other communities new projects aiding the poor and elderly have been instituted. To the criticism that under the general revenue sharing program the poor are being shortchanged, the Advisory Commission on Inter- governmental Relations has argued that because of the fungibility---T or the comingling---of revenue sharing funds with other State and local funds, it is virtually impossible to ascertain the actual uses for which general revenue sharing allotments were spent. However, the addi- tional funds aid State and local governments in carrying out all of their _ programs whether their funds are comingled or not. The minimum of Federal "strings" or requirements incorporated in the general revenue sharing legislation eliminates onerous details, paperwork and red tape which generally attend the distribution of Fed- eral aid funds. Federal officials thereby have more time and energy to devote to the more pressing problems of maintaining our national security, building better relationships’ with our allies abroad and meet- ing the needs of our citizens at home. They are also freed from con-— stant pressures exerted by lobbying groups seeking special favors, CRS - 12 benefits, or projects for their particular groups or districts. State and local officials also are able to operate more independently, free of bureaucratic controls and delays. Many programs now administered from Washington can be performed more efficiently at the State and local level. Thus, the spread of a growing Federal bureaucracy is halted. General revenue sharing payments have supplemented rather than supplanted existing Federal categorical aid programs as has frequently been charged. An examination of the following Federal aid outlay data reported in the latest Federal Budget document reveals that Federal grants to State and local governments have increased rather than di- minished since enactment of the State and Local Fiscal Assistance Act Of 1972: 1/ Fiscal Year Federal Grant Outlays (in millions) 1972 $3 5, 940 1973 43, 963 1974 4:6, 040 1975 (estimated) 52, 649 1976 (estimated) 55, 632 Federal revenue sharing has brought about a real working partner-- ship between our national, State and local governments. It has also fostered cooperation among neighboring governmental units. The 1/ U. S. Executive Office of the President. Office of Management and 7' Budget. Special Analyses, Budget of the United States Government, Fiscal Year 1976, p. 242. The amounts given include the following general revenue sharing outlays: 1973, $6, 636 million; 1974, $6, 106 million; 1975, $6,176 million (estimated); and 1976, $6, 304 million (estimated). CRS - 13 General Accounting Office in a report on the use and impact of the general revenue sharing program on 250 selected local governments through June 30, 1973 reported: "about 31 percent of the counties, 23 percent of the cities, and 30 percent of the townships indicated that revenue sharing had encouraged regional intergovernmental projects, programs or cooperation. "'1! Others have reported that this legislation has tended to eliminate competition among neighboring jurisdictions for Federal categorical grant funds. Arguments Against General Revenue Sharing: Some believe that the Federal Government's financial condition is far more serious than that of State and local governments, and hence, that the national government can illv-afford to continue this program 9 beyond 1976. When Federal revenue sharing began to receive more widespread attention in 1964, it was believed that it could be financed out of budg- etary surpluses produced by an expanding economy. While it is true that the Federal Government did realize a budget surplus of $3. 2 bil- lion in the fiscal year 1969 when President Nixon submitted his first general revenue sharing proposal to the 91st Congress, experience of the past has demonstrated that budgetary surpluses have been the ex- ception rather than the rule. And there is no evidence to cause one to believe that this trend is/going to be reversed in the immediate future. 1/ U. S. General Accounting Office. Revenue Sharing: Its Use By and —' Impact on Local Governments, Department of the Treasury; Report to the Congress By the Comptroller General of the United States. [Washington] 1974, p. 26. CRS - 14 In the fiscal year which ended on June 30, 1974 a Federal deficit of $3. 5 billion was incurred. According to the latest Federal budget document published in February 1975, the deficit for the current fiscal year (1975) is expected to be ten times higher ($34. 7 billion), and for the fiscal year 1976, it is expected to be well in excess of $50 billion. Hence, it is argued, the Federal Government simply cannot afford to continue this general revenue sharing program which will create addi- tion deficits and will add further to the burden of our national debt which on February 28, 1975 amounted to $500 billion. Itis widely argued that deficit financing contributes to inflationary pressures. Opponents of general revenue sharing argue that by allowing this program to expire, the Federal Government would be able to save some $6 billion a year. This would, in some measure, help to alleviate the critical problem of Federal budget deficits and their inflationary impact on the economy. While the condition of our Federal finances steadily worsens, some question whether State and local government financial needs still are as pressing as when general revenue sharing was first recommended; therefore, is there justification for continuing this program beyond its expiration date of December 31, 1976. They cite the following budg-~ etary surpluses achieved by State and local governments, in the aggre- gate, on a national income and product accounts basis: a high of $19. 6 billion for the fourth quarter of 1972 (at a seasonany adjusted annual rate), $12. 3 billion for the calendar year 1972, $9.2 billion for cal- endar year 1973 and $1. 7 billion estimated for calendar year 1974. In CRS - 15 addition, a New York Times survey noted that more than 40 of the 50 States were operating in the black:-y Furthermore, the fact that recent State legislative activity has been concentrated more on tax reduction and relief measures rather than revenue raising legislation indicates that State governments, in particular, have been in a stronger position financially. As a Tax Foundation staff report stated: "For the second year in a row the major tax issues in state legislative debates focused on ‘relief’. Al-— though there were scattered tax increases, reductions were far more I numerous. ' This report further stated: By mid-September tax reductions totalling $685 million annually had been approved in 14 states, against $335 million in increases in nine other states-~a net reduction of $350 million. That com- pares to a $500 million net reduction last year, re~ flecting continuation of the relatively favorable ‘ financial positions of most state governments. _2_/ For these reasons, it is argued that the financial condition of State and local governments, in the aggregate, is not as serious as that of the national government, and the general revenue sharing program should be allowed to expire. It is asserted that Federal revenue sharing violates an important principle of good government---that the authority to collect taxes should not be separated from the authority to spend these revenues. It is argued that such authority should be vested in one government; other- wise, irresponsible use of public funds may result. It is a generally _l_/ Ovéer 40 States Run Fund Surplus. New York Times, December 1, 19 4, p. 63. ‘ _2_/ Tax Foundation. State Tax Action in 1974. Tax Review, V. 35, no. 10, October 1974, p. 39. CRS -- 16 accepted doctrine that a government which must report to its con—- stitutents on the expenditure of its tax dollars is far more apt to use these public funds carefully and wisely. Critics argue that State and local governments are not using the shared revenues for the most urgent needs of their citizens. They cite examples of frivolous uses of general revenue sharing such as to build golf courses, swimming pools, tennis courts, or in one instance, to improve a bridle path. They criticize use of the funds for one-time construction projects such as for police stations or city halls rather that for socially;-oriented activities or for innovative programs. They contendthat, in essence, general revenue sharing amounts to an abdication by the Federal Government from its traditional support for social programs of high national priority. This support is further eroded by Federal budgetary actions terminating or reducing existing aid programs and by Executive impoundment of appropriated funds. Some believe that State and local governments simply do not have the capability to develop social programs which will meet the nation's most pressing problems. They assert that under the revenue sharing program, money and power is being transferred from the "have-nots" to the "haves" and from the inner-city poor to the more affluent suburbs and small towns. They argue that it has brought to a standstill many of the advances A made in recent years aiding the poor, elderly, disadvantaged and mi- nority groups. CRS -- 17 Reports issued to date analyzing uses made of general revenue sharing funds by State and local governments reveal a relatively small proportion of the total funds distributed being spent for housing and community development, social services for the poor or aged and social development, while larger shares are spent for public safety and public transportation. For example, the Office of Revenue Sharing reports that the largest proportion of total funds expended by State and local governments received for Entitlement Period 4 (fiscal year 1974) was spent for public safety (23 percent), education (21 percent), and public transportation (15 percent), while 4 percent was spent for social services for the poor or aged, 1 percent for housing and community development and less than 1 percent for social development and eco-- nomic development.-U It is argued that the relative absence of Federal "strings" or con-- trols in this legislation invite s wasteful and extravagant spending. Some believe that State and local officials may not be able to resist pressures to use these funds for less productive purposes. Some fear they may be tempted to take actions lowering property or other taxes in the ‘ interest of getting re-elected rather than allocating the funds for more urgent programs. It is believed that significant amounts of the revenue sharing al- lotments are used for substitution purposes--that is, State and local governments have supported existing programs with their allocations and have cut their normal spending by corresponding amounts and are thereby relaxing their own fiscal effort. _l_/ U. S. Treasury Department, Office of Revenue Sharing, op. cit., p. 35. CRS -- 18 It is contended by some that general revenue sharing rather than representing new money from the Federal Government to States and localities as was promised by the Nixon Administration when its pro- posals were being considered, actually has supplanted ratherthan sup- plemented Federal categorical aid programs. In support of this contention, President Nixon's promise given on February 4, 1971 in his message to the 92nd Congress outlining his general revenue sharing proposal is cited: The specific appropriation level I am recommending is 1. 3 percent of taxable personal income; this would mean a General Revenue Sharing program of approxi- mately $5 billion during the first full year of operation, a sum which would rise automatically to almost $10 billion by 1980. All of this would be ‘new’ money ~- taken from the increases in our revenues which result from a growing economy. It would not require new taxes nor would it be transferred from existing pro grams. _l__/ 9 Once the general revenue sharing legislation was enacted in Oc- tober 1972, however, the Administration began to take actions early in 1973 terminating and reducing existing Federal aid programs, im~ pounding appropriations and instituting a housing moratorium. 7 For example, in the Federal Budget document submitted in January 1973 for the fiscal year 1974 the following justification was given for ter-- minating the Office of Economic Opportunity: 1/ U. S. President. Message. General revenue sharing. 92nd Con- _ gress, lst session (House Document 92-44), February 4, 1971. CRS - 19 No funds are requested for the Office of Economic Opportunity for 1974. Effective July 1, 1973, new funding for Community Action agencies will be at the discretion of local communities. After more than seven years of existence, Community Action has had an adequate opportunity to demonstrate its value. In addition to private funds, State and local govern- ments may, of course, use general and special re- venue sharing funds for these purposes. With Com- munity Action concepts now incorporated into ongoing programs and local agencies, the continued existence of OEO as a separate Federal agency is no longer necessary. _1_/ Therefore, critics of this program contend that the Administration has betrayed the trust of those who voted for this legislation, and in- stead of receiving additional funds as was initially promised, many g States, cities and other governing units are being compelled to use their general revenue sharing allocations to support those activities for which other Federal funding has been reduced or terminated. The Senate Subcommittee on Intergovernmental Relations survey on how 45 governing jurisdictions view revenue sharing reported that of 12 States responding to the question as to whether their general re-- _ venue sharing allotments were regarded as "new money or as money to replace Federal cutbacks and impoundments, " three States used revenue sharing to replace cutbacks" and four States "treated it as a combination of new and replacement money". Of the 14 cities respond- ing to this question, 4 used their allotments to replace cutbacks and _l__/ U. S. Executive Office of the President. Office of Management and Budget. The Budget of the United States Government, Fiscal Year 1974. Washington, U. S. Govt. Print. Off., 1973, p. 122. CRS - 20 6 deposited their allocations into their general fund treating them neither as new or as replacement funds.-U It is contended that the general revenue sharing legislation fails to promote a strong Federal system of government. Opponents charge thatit weakens State, governments since they receive only one-third of the funds and are by--passed in the dis- tribution of the remaining two--thirds which is paid directly to each qualifying county, city, township, etc. For this reason, it is dif-- ficult to integrate the program throughout an entire State, and, there- fore, duplication of effort and waste result. At the local level, it is argued, this program perpetuates weak, inefficient governing units and acts as a deterrent to local govern-- ment reform. This is due to the fact that this additional source of revenue for small, inefficient, overlapping governments gives new life to these units which otherwise would be consolidated. 1/ U. S. Congress. Senate. Committee on Government Operations. —' How 45 Selected Jurisdictions View Revenue Sharing. Committee Print. 93rd Congress, 2nd Session. Washington, U. S. Govt. Print. Off., June 1974, pp. 2--3. V CRS - 21 Conclusion: Undoubtedly, there will be controversy during the 94th Congress on the question of whether general revenue sharing should be allowed to expire, or whether it should be extended for a limited period of time, or whether it should be established on a permanent basis. One of the main points of controversy perhaps will focus on how it is to be funded. It is now financed out of permanent appropriations which become available automatically and do not require annual review by the appropriations committees. Should Congress decide to extend this legislation, attempts will certainly be made to have it financed by regular annual appropriations which will subject the program to annual study and review by the Appropriations committees. CRS - 22 APPENDIX BILLS INTRODUCED DURING THE 94TH CONGRESS WHICH WILL AMEND THE STATE AND LOCAL FISCAL ASSISTANCE ACT OF 1972 (P.L. 92-512)_y A the 94th. Congress a number of bills have been introduced which vvill extend the general revenue sharing program beyond its terminationidate of December 31, 1976, or which will amend the State and Local Fiscal Assistance Act of 1972 inother ways. Each of these measures has been referred either to the House Government Opera-— 2/ I tions Committee or to the Senate Finance Committee. A brief sum- mary of each of the bills is given below. H. R. 1318 (Representatives James R- Jones and Bill Alexander), January 14, 1975. Amends the State end Local Fiscal Assistance Act of 1972 to provide that no general revenue sharing payments shall be made to State and local units of government for any entitlement period which begins in any fiscal year unless the Federal budget submitted for that fiscal year is in balance or estimates a surplus. S. 9 (Senator Robert Dole), January 15, 1975. Amends the State and Local Fiscal Assistance Act of 1972 to extend this legislation for five years--to December 31, 1981. Appropriates 1] Includes all bills which we have been able to identify which were — introduced through April 7, 197 5. Up to the present time, no action has been taken on any of these bills. 2/ Committee jurisdiction over general revenue sharing legislation in _ the House of Representatives was transferred from the Ways and Means Committee to the Government Operations Committee under House Resolution 988 approved during the 93rd Congress. CRS -- 23 $38.3 billion to finance the general revenue sharing program through this period, increasing the annual level of funding by $150 million, The appropriations provided in this bill are as follows: July 1, 1976 through September 30, 1976 $ 1, 663, 695, 000 Fiscal year ending 1 September 30, 1977 6, 654., 780, 000 Fiscal year ending September 30, 1978 6, 804, 780, 000 Fiscal year ending September 30, 1979 6, 954, 780, 000 1 Fiscal year ending September 30, 1980 7, 104, 780, 000 Fiscal year ending September 30, 1981 7, 254, 780, 000 October 1, 1981 through December 31, 1981 1, 851, 195, 000 Total appropriations $38, 288, 790, 000 S. 11 (Senator Bill Brock and others), January 15, 1975. H. R. 1866 (Rep. Jack F. Kemp), January 23, 1975. H. R. 2916 (Rep. Albert H. Quie-), February 5, 1975. State and Local Fiscal Assistance Act of 1975. Authorizes continua~«~ tion of the general revenue sharing program on a permanent basis. Amends Section 105 of the State and Local Fiscal Assistance Act of 1972 to provide the following appropriations: For the period from July 1, 1976 through September 30, 1977 the following specific dollar amounts are appropriated: July 1, 1976 through June 30, 1977: In General (Section l05(b)(1) $6, 650, 000, 000 Adjustment amounts for Alaska and Hawaii to take into account differences in the cost of living (Section l05(b)(2) 4, 780, 000 Total amount, fiscal year 1977 $6, 651. , 780, 000 CRS ~ 24 July 1, 1977 through September 30, 1977: In General (Section lO5(b)(1) $1, 700, O00, O00 Adjustment amounts for Alaska and Hawaii (Section 105(b)(2) l, 195, 000 Total for three month period 701, 19:3, 000 For the fiscal years beginning after September 30, 1977, amounts equal to a constant percentage of the Federal personal income tax base (. 7 ofl percent of the sum of adjusted gross income reported by in- dividuals on their Federal income tax returns for taxable years ending with or within the preceding calendar year) are appropriated to the State and Local Government Fiscal Assistance Trust Fund. In addition, the following adjustment amounts for Alaska and Hawaii are appropri- ated for each of the fiscal years beginning with 1978 and thereafter: an amount equal to the sum of $4, 780, 000 plus $4, 780, 000 multiplied by the percentage by which the amount appropriated under Section 105 (b)(l) exceeds $6, 650, 000, 000. Repeals Section 103 of the State and Local Fiscal Assistance Act of 19 7 2 t o A eliminate the requirement that local governments must spend their allotments for certain high-priority programs. 1/ Provides that pursuant to Section 40l(d)(2) of the Congressional Budget Act of 1974 that the new spending authority contained in this legislation shall continue to become available automatically rather than necessitating the enactment of regular annual appropriations. l/ (1) Ordinary and necessary maintenance and operating expenses for: "' a) public safety, b) environmental protection, c) public transpor-— tation, d) health, e) recreation, I") libraries, g) social services for the poor and aged, and h) financial administration; and (2) ordinary and necessary capital expenditures authorized by law. CRS -- 25 H. R. 3652 (Representative Robert W. Kasten, Jr. ), February 25, 1975. Federal Revenue Sharing Extension Act of 1975. Amends the State and Local Fiscal Assistance Act of 1972 to extend the general revenue sharing program through September 30, 1987. Appropriates $83, 948, 88 5, 000 for this additional 10--3/4 years period, increasing the annual level of funding by $200 million. The amounts appropriated are as follows: January 1, 1977 through September 30, 1977. . . . . $4, 401, O85, O00 Fiscal year ending September 30, 1978. . . . . . . . . . 7, 054, 780, 000 Fiscal year ending September 30, 1979. . . . . . . . . . 7, 254. 780. 000 Fiscal year ending September 30, 1980. . . . . . . . . . 7, 454, 780, 000 Fiscal year ending September 30, 1981. . . . . . . . . . 7, 654, 780, 000 Fiscal year ending September 30, 1982. . . . . , . . . . 7, 854, 730, 000 Fiscal year ending September 30, 1983. . . . . . . . 8, 054, 780, 000 Fiscal year ending September 30, 1984. . .. . . . . . . . 8, 254. 730. 000 Fiscal year ending September 30, 1985. . . . . . . . . . 8, 454, 780, 000 Fiscal year ending September 30, 1986. . . . . . . . . . 8, 654, 780, 000 Fiscal year ending September 30, l987.......... 8,854,780, 000 Total appropriated. . . . . . . . . . . . . . . . . . . . . . . . . $83, 948, 885, 000 Repeals Section 103 of the State and Local Fiscal Assistance Act of 1972 which limited the expenditure by local governments of their gen-- eral revenue sharing allocations to certain high priority programs. Requires State and local governments to give their citizens an op-~ portunity to submit comments and suggestions on how their general revenue sharing entitlements may be spent. CRS - 26 H. R._ 4305 (Representative Richard H. Fulton), March 5, 1975. Amends the State and Local Fiscal Assistance Act of 1972 to extend the general revenue sharing program through September 30, 1981. Appropriates $68, 025, 095,000 for this program, increasing the annual level of funding from $6 billion to $12 billion, beginning with the fiscal year which begins on July 1, 1976. Thereafter, for the next four fiscal years, the amount provided is increased by $500 million annually. The amounts appropriated are as follows: Ju1y1, 1976 through September 30, 1977........$15, 005,975, 000 Fiscal year ending September 30, 1978. . . . . . . . . 12, 504, 780, 000 Fiscal year ending September 30, 1979.... . .... 13, 004, 780, 000 Fiscal year ending September 30, 1980. . . . . . . . . 13, 5041, 780, 000 Fiscai year ending September 30, 1981......... 14,oo4,78o,ooo Total appropriated. . . . . . . . . . .. . . . . ....... $68, 025, 095, 000 g H. R. 4607 (Representative William R. Cotter), March 11, 1975. A "Amends the State and Local Fiscal Assistance Act of 1972 to pro- vide that taxes received by certain special districts which are not units of local government but which perform municipal services within cities and other units of- local government shall be included in the tax effort of such cities and other units. " S. 1255 (Senator Thomas F. Eagleton), March 20, 1975. Revenue Sharing Amendments of 197 5. Amends the State and Local Fiscal Assistance Act of 1972 as follows: CRS - 27 Amends Section 106 to change "the State-by-State allocation from the higher of the original two formulas" which States may now choose ."‘. " 4"’-\ "C"-I 1 C‘ ‘C; 13!: .i. SL2. II.‘ for purposes of determining their over--all State allocation of revenue sharing funds.. Under this bill a State‘s allotment w«;>L1ld amount to an "average of the two formulas". ‘Amends Section 107 to modify the share of funds now receixred by State and local governmental units within each State as follows: Rather than the present mandatory two-thirds local and one-third State disw tribution for each State, "the relative shares would be determined by comparing the amount of revenues raised by the two levels of §3_OT.?‘<:+..1”¢';‘iw- ment within each State with the national average. The gram-:::~;':--a~ ment's share would be adjusted up or down from 33-l/3 percent ac-» cording to the number of percentage points by which its share of re»- venues within the State exceeds or falls short of the national average.':'["/ Provides that these amendments shall become affective on July 1, 1975. 1/ Eagleton, Thomas F. Remarks on introducing S. 1255, Revenue "' Sharing Amendments of 197 5. Congressional Record, 1\/larch 20, 1975, pp. s. 4558-4559. ~ F i LIBRARY or WASHENGTON . UNKVERSITY ST. LOUIS ~ MG. 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