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The original documents are located in Box 55, folder "1976/01/12 - Economic Policy Board"
of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 55 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
AGENDA
8:30 a.m.
Roosevelt Room
January 12, 1976
1. Proposals to Repeal the Excise Tax
Treasury
on Trucks, Trailers, and Buses
2. Food Deputies Report
MacAvoy
3. Report on IMB meetings
Treasury
OF
DEPARTMENT THE TREASURY
THE
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
1789
ASSISTANT SECRETARY
January 9, 1976
To: Executive Committee
Economic Policy Board
From: Charles M. Walker CUT
Assistant Secretary for Tax Policy
Subject: Legislation proposing the exemption of truck-
trailers from 10 percent manufacturer's excise tax
Attached find a staff memorandum, which provides
additional information concerning this proposed legislation.
Attachment
Exemption of truck-trailers from 10 percent
manufacturers excise tax
I.
The Treasury Department cannot offer any support for exemption
of truck trailers from excise tax (the same is true of trucks and
truck parts):
1. The President's 1975 highway program announced on July 3, 1975
involves indefinite retention of all taxes going into the Highway
Trust Fund--except that 3/4 of the gasoline tax would be transferred
to the general fund. Under current law the Fund would end in 1977.
Trucks, truck-trailers and truck parts are one source of revenue for
the Trust Fund. The complicated aspects of the gasoline tax shift
need not concern us at this point.
2. On December 11, 1975, the Ways and Means Committee agreed
to extend from September 30, 1977 to September 30, 1979 the Highway
Trust Fund and the taxes used to finance the fund.
II.
Even if these political acts had not taken place, we could not
support repeal as long as the Federal Government has a large and
significant highway aid program because:
1. Heavy trucks and truck-trailers even now are contributing
less than their share of highway costs as determined by cost
allocation studies of the Department of Transportation.
2. User charges cannot be turned off and on for fiscal policy
purposes. Fiscal policy has to be limited to general revenue taxes
and expenditures.
III.
Leaving I and II aside, repeal of the tax on truck-trailers
(and trucks) will not have any significant aid in pulling the industry
out of the present slump. Trucks and truck trailers are bought for
is
FORD
atvi
business reasons. When freight hauling falls off, truck and trailer
purchases fall off to a greater degree because there is an excess of
equipment. Furthermore, in the present instance, truck and truck-
trailer purchases were exceedingly large in 1974 because purchasers
stocked up to avoid cost increases arising from new brake standards
required at the beginning of 1975.
Once freight loadings fall off truckers are not going to go
out and purchase new vehicles until the combination of wear and tear
requires replacements. To buy ahead of needs merely because a tax
reduction leads to a reduced price (the reduction to purchasers would
be about 7 percent in the present case because the 10 percent tax is
imposed on the manufacturer's price, not the price paid by the retail
customer) would be foolish. Depreciation and interest costs are too
heavy to buy equipment to let it stand idle.
The attached table shows that manufacturers' truck-trailer ship-
ments jumped 87 percent from 1971 to 1974 while the index of the
volume of freight carried by Class I and II carriers of general
freight grew only 25 percent. 1/ (The freight index actually reached
its peak in November 1973 while trailer shipments reached the peak in
August and October 1974). In October of 1975 the freight index was
down 21 percent from its high of November 1973. In the first months
of 1975 truck trailer shipments were down 64 percent from 1974.
Truckers obviously have considerable excess capacity as a result
of the build-up of purchases in 1973 and 1974, greatly in excess of
the growth of freight shipments. Now that freight shipments are down,
1/ The actual growth was slightly more, maybe 30 percent. A change in
the method of computing the index beginning in January 1974 destroyed
comparability with carlier years.
R. FORD LIBRAND
- 3 -
truck-trailer manufacturers are just going to have to sweat it out
as the economy expands. In any case, it is going to be a long time
before they get back to anywhere near the 1974 level of production.
Attachment
LIBRATT GERALD FORD
Comparison of manufacturers shipments of truck-trailers and intercity
freight tonnage of Class I and II common motor carriers of general
freight, 1971-1975
:
:
:
Manufacturers shipments of truck-trailers (units)
:
:
Index of freight tonnage of common carriers of general freig
:
:
:
Month
:
:
:
:
:
:
:
:
:
:
:
1971
:
1972
:
1973
:
1974
:
1975
:
:
1971
:
1972
:
1973
i
1974
1975
:
:
:
:
:
:
:
:
:
(1967=100)
January
11,502
15,240
6,581
153.1
168.4
127.3
February
13,410
15,273
5,727
160.1
167.2
128.9
March
14,384
16,854
5,737
166.0
166.4
122.2
April
13,938
15,564
5,871
162.5
159.1
125.2
May
14,268
15,905
6,412
163.4
157.6
123.0
June
13,696
16,339
5,542
162.2
158.5
128.3
July
12,906
14,856
5,233
159.6
154.8
131.2
August
12,997
17,538
4,977
159.3
149.8
138.5
September
12,915
16,521
5,212
162.6
153.2
140.1
October
15,585
17,216
167.7
152.1
137.5
November
14,839
15,950
174.6
144.6
December
14,201
14,006
170.1
135.4
Year
102,139
130,029
143,310
191,262
124.5
136.4
163.4
155.6
1st. 9 mos.
144,090
51,292
Office of the Secretary of the Treasury
January 6, 1976
Office of Tax Analysis
Source: Survey of Current Business and American Trucking Association.
1/ Definition of tonnage changed January 1, 1974 from billed tonnage to actual tonnage carried.
FORD
OF
AMOUNT THE TREASURY
THE
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
1789
ASSISTANT SECRETARY
DEC 10 1975
MEMORANDUM TO: The Honorable
L. William Seidman
Assistant to the President
for Economic Affairs
FROM: Charles M. Walker
ceo
Assistant Secretary (Tax Policy)
SUBJECT: Proposals to Repeal the Excise Tax on
Trucks, Trailers, and Buses
Attached is a staff analysis of the Rinfret-Boston
Associates' brief for repeal of the excise tax on trucks,
trailers, and buses. I am also attaching a letter which
my Deputy Assistant Secretary wrote on this subject in
response to a communication from Mr. Calvin, President
of the Truck Trailer Manufacturers Association. We have
repeatedly made the case that the overall economic climate
rather than the excise tax is responsible for the decline
in truck manufacturing output and employment.
I would only add two points to this. One is that the
recent change in fuel costs may have been a major con-
tributing factor to the recent decline in motor vehicle
production. The other is that the industry concern arises
in part because of the extra costs associated with the
new brake standards required as of March of this year and
that if relief is to be afforded it may be preferable to
reevaluate the regulatory requirements rather than re-
pealing the excise tax. The justification for such relief
could be stated in terms of timing, that is, that reces-
sion, fuel cost changes, and increased regulatory costs
are too much to absorb in a short period of time.
We would still maintain, however, that the user
charge system should be retained as an important mechanism
for financing our highway system.
Attachments
November 24, 1975
Rinfret-Boston Associates
brief for repeal of the excise
taxes on trucks and truck parts
I. Present law
Trucks, truck tractors, truck trailers and semitrailers,
and buses are taxed at 10 percent of the manufacturer's
selling price.
Parts and accessories for trucks are taxed at 8 percent
of the manufacturer's selling price.
Trucks of not over 10,000 pounds gross vehicle weight
(light duty trucks) and trailers and semitrailers of not
over 10,000 pounds gross vehicle weight suitable for use
with light duty trucks are exempt.
The revenues from the taxes accrue to the Highway Trust
Fund, but this transfer of revenues is to be discontinued
as of October 1, 1977 and the tax rates are to revert to
5 percent in both cases.
Revenues for fiscal 1976 have not yet been reestimated
for the new budget, but they will be in the order of
$650 million ($500 million for trucks and buses; $150 million
for parts and accessories).
II. President's 1975 highway program
The President's 1975 highway program contemplates making
the Highway Trust Fund permanent, rather than dissolving it
after 1977, while at the same time using the Fund only to
finance completion and improvement of the Interatate Highway
System. Other Federal transportation aid, now furnished from
- 2 -
the Trust Fund would be financed from the general fund of
the Treasury. These changes in highway financing would
involve making permanent all present highway user charges
(all but 2 minor items of which are now scheduled to be reduced
or repealed in 1977). All user charges now used to finance
the Trust Fund would continue to be so used except for 3 cents
of the 4 cent gasoline tax which would revert to the general
fund. One cent of the 3 cents would be rescinded in any
State which raised its gasoline tax by 1 cent a gallon or more.
Revenues for the reconstructed Trust Fund would be about
$3.2 billion at fiscal 1976 levels.
III. Rinfret-Boston arguments for repeal of truck taxes
1. The truck and truck parts taxes constituted 12 percent
of Highway Trust Fund receipts in fiscal 1975.
2. The taxes fall most heavily on a small number of truck
purchases because of the 10,000 pound exemption.
3. Truck operations in areas served by alternate means of
transportation are at a competitive disadvantage because
of the taxes.
4. Removal of the taxes will stimulate demand for the vehicles
(and truck manufacturing employment) which has been
drastically reduced by the recession plus the anticipatory
buying of vehicles to avoid extra costs associated with
new brake standards required as of March 1, 1975.
- 3 -
5. The excise taxes negate any stimulative effect of the
investment credit for the truck transportation industry.
IV. Comments
The brief very carefully avoids mentioning why the
highway user charges exist, nor does it analyze the effect repeal
would have on highway financing, has no evaluation of the
effect of repeal on truck sales, and is incorrect as to the
relationship of the truck taxes and the investment credit.
1. Since motorists and truckers directly benefit from
Federal highway aid, it is considered desirable that
they should pay for the highways in user charges.
Otherwise, there will be a misallocation of resources
to highways (too much or too little) compared to other
transportation media. There also is a similar user
charge system in effect for the airways (but not the
waterways). The highway user charge system is not perfect,
however. Contrary to the Rinfret assertions and implica-
tions, heavy trucks do not "pay" as much as cost
allocation studies show they should, and light duty trucks
do pay their allocable share. Furthermore, truckers are
favored over railroads in that there are no property taxes
assessed against highways, while the railroads pay taxes
on their right of way and tracks. Thus, truckers are not
at a "disadvantage" when competing with railroads.
- 4 -
2. Repeal of the truck and truck parts taxes would reduce
receipts of the restructured Highway Trust Fund proposed
by the President by 20 percent. This would require
restriction of work on the Interstate System which has
been of tremendous value to heavy trucks and intercity
buses. But it should also be noted that the tire
industry is pushing for repeal of the tire tax, which
at $750 million represents another 23 percent of the
revenues proposed for the revised Trust Fund.
3. Truck output fluctuates more during a business cycle
than output in general because trucks are a capital
item. Repeal of the tax, even though it represents about
7 percent of the purchaser's cost of a truck, is not
going to have any noticeable effect in offsetting the
effect of the cycle on sales. A trucker who has excess
capacity is not going to buy an unneeded truck or trailer
because prices have been reduced. Truck production will
only recover when output in general has expanded. In
the long-run, of course, repeal of the taxes would lower
trucking costs and give truckers a further competitive
advantage over railroads.
4. The excise tax does not offset the stimulative effect of
the investment credit. Just the opposite. Since the
excise tax was in effect long before the investment credit,
the latter helps offset the effect of the excise tax.
- 5 -
In any case, relating the two measures is unjustified.
The investment credit lowers the cost of eligible
business investment for all industries. The excise tax
reflects part of the cost of providing facilities for
the trucking industry and helps equalize the competitive
position of competing transportation media.
V. Conclusion
The taxes on manufacturers' sale of trucks and truck
parts should not be repealed. The taxes are an integral part
of the highway user charge system. And user taxes cannot be
revised as part of a countercyclical fiscal policy. To do
so destroys the objective of a user charge system of allocating
costs of specific goods and services to those parties which
directly benefit from the expenditures.
DEPARTMENT THE THEAMST
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
1719
ASSISTANT SECRETARY
OCT 31 1975
Dear Mr. Calvin:
Your letter of October 2 to Vice President Rockefeller was
referred to the Treasury Department, since it is a follow-up to your
letter of July 29 which was answered on August 29 by my predecessor,
Mr. George S. Tolley.
Our position on repeal of the tax on truck trailers, etc. has
not changed since the earlier reply. As Mr. Tolley indicated, we
believe that increased general business activity will provide the
really effective stimulus to demand for transportation equipment. We
realize, of course, that the production of truck trailers has declined
significantly, but production of capital goods always declines more
than the output of consumer goods during a recession. The converse is
true during the upward part of the business cycle, although capital
goods production often begins to recover later than the economy in
general. The large increase in gross national product during the
third quarter of this year indicates that recovery is well on its way,
and the output of capital goods subsequently should follow the normal
pattern of recovery.
Sincerely yours
David F. Bradford
Deputy Assistant Secretary
Mr. Charles J. Calvin
President
Truck Trailer Manufacturers
Association
2430 Pennsylvania Avenue, N. W.
Washington, D. C. 20037
EYES ONLY
MINUTES OF THE
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
January 7, 1976
Attendees: Messrs. Seidman, Lynn, Greenspan, Gardner, Dunn,
Robinson, Baker, Zarb, Cannon, Malkiel, Penner,
Porter
1.
Implementation of Tax Cuts in 1976
The Executive Committee briefly reviewed a memorandum
prepared by the Department of the Treasury on "Implementation
of Tax Cuts in 1976. " The memorandum reported a substantial
reduction in the number of returns with "hypothetical" tax
increases under the President's permanent tax reduction pro-
posal.
Decision
Treasury will prepare new tables showing a comparison of tax
reductions under the President's proposal and tax reductions
from a simple magnification of the recently enacted temporary
tax reduction. Treasury will also explore a possible revision
in the rate schedules for individuals filing single returns with
incomes over $10,000 that would eliminate the "hypothetical"
tax increase.
2.
Monthly Review of the Economic Outlook
Mr. Malkiel presented the monthly review of the economic out-
look prepared by Troika II. The discussion focused on whether
the projected increase in real growth represents an appropriate
target and on the most appropriate mix of fiscal and monetary
policies to achieve the desired level of real growth.
EYES ONLY
RBP
THE WHITE HOUSE
WASHINGTON
January 9, 1976
FOR ECONOMIC POLICY BOARD EXECUTIVE COMMITTEE MEMBERS
The attached Food Deputies Report will be discussed
at the Monday, EPB Executive Committee meeting.
The attached letter to Mayor Landrieu re Countercylical
will be discussed Tuesday.
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
January 9, 1975
ALAN GREENSPAN, CHAIRMAN
PAUL W. MACAVOY
BURTON G. MALKIEL
MEMORANDUM FOR ECONOMIC POLICY BOARD - EXECUTIVE COMMITTEE
FROM:
Paul W. MacAvoy Pane many
SUBJECT:
Food Deputies Report No. 35
WORLD GRAIN SITUATION
This memorandum summarizes and discusses current
estimates of world supply consumption and trade of grains
and recent changes in these estimates. The basic data
are presented in Table 1.
1.
Supply
The grain supply picture for 1975/76 is now reasonably
well determined, with USDA and private trade sources in
essential agreement on the situation. Production in 1975/76
is now projected at 921.7 million metric tons, practically
unchanged from a year earlier. This estimate incorporates
the recent reduction of the Soviet grain crop to 137 million
metric tons, and is consequently about 1.8 percent lower than
the preceding (October 31) USDA estimate. Because beginning
stocks are about 8 percent lower in 1975/76 than those
coming out of the record 1973/74 season, total supply for
1975/76 is estimated to be 8.3 million metric tons (0.8 percent)
lower than a year earlier. The only major instances where
weather could yet make a difference is with respect to feed
grains in Argentina and South Africa. But even if feed grain
production should be reduced in these countries as much as
20 percent, world grain supplies would decline by only
one-half of 1 percent.
World rice production in 1975/76 is projected at
347 million metric tons, 20 million tons (6 percent)
above last year's level which, unlike the case of grains,
was already a record crop. The rice estimate has increased
2 percent since October. The large supply is attributable
to the past several years of high producer prices, an
excellent Asian monsoon, and some increased use of high-
ANERICAN REVOLUTION WEENTENNING
1776-1976
:
Table 1. World Supply-Demand Balance of Grains and Rice
2/
1974/75-
1975/76-
(millions of metric tons)
Total Grains (Wheat, Rye and Feed Grains)
Supply:
Beginning stocks
110.6
101.9
Production
921.3
921.7
Total supply
1031.9
1023.6
Demand:
Consumption
930.0
924.2
Ending stock
101.9
99.4
Total demand
1031.9
1023.6
Trade
125.9
140.4
Rice
Supply:
Beginning stocks
10.4
10.5
Production
326.8
346.9
Total supply
337.2
357.4
Demand:
5/
Disappearance
325.7
343.7
Ending stocks-
10.5
13.7
Total demand
336.2
357.4
Trade
7.5
7.2
Year beginning July 1.
USDA projection as of Dec. 19.
Aggregate of differing local marketing years.
4/ Excludes trade within the EC.
5/ Includes ending stocks of several important producers whose
stocks are unknown.
-3-
yielding varieties.
2.
Demand and Price
The reduction of estimated world grain supplies since
October has not increased world and U. S. grain prices.
The reason is probably the trade's expectation that the
additional Soviet shortfall will not be translated to world
demand
There is disagreement on whether Soviet import capacity
is nearer 2 million (USDA estimate) or 3 million (CIA estimate)
metric tons per month. If capacity is indeed close to 30 million
tons for the 15 month July 1975 through September 1976 period,
it will constrain the Soviets from adding more than 3 to 4 million
tons to the estimated 26 to 27 million tons they have already
purchased. Thus the additional shortfall since October may
not add to price. On the other hand, if capacity is 3 million
per month then the Soviets could buy much more. A large increase
could firm up prices.
With essentially fixed supplies, world price movements
in the next several months will depend on such changes in
demand. If feed use increases faster than expected in response
to recent lower grain prices, the demands would increase.
Some private sources predict feed grain use higher than
currently projected by USDA. If increased feeding materializes
together with a drought-reduced Argentine crop, feed grain
prices would be likely to increase, although no run-up
approaching that of last summer appears in the offing.
In contrast to feed grains, wheat demand is not likely to be
subject to near-term unexpected increases and the large
rice supply should help prevent sharp price increases. Food
demand increases with economic recovery are likely in the
industrial countries, but because the income elasticity of
demand for food, especially food grains, is low demand
increases may not be large.
1/ USDA's currently projected consumption of grain would
leave world ending stocks at 99.4 million for 1975/76, down
1.5 million metric tons from a year earlier. However, pro-
jected ending stocks outside the Soviet Union are up by
about 3.5 million tons. These aggregate stock figures are
not as meaningful as those for a single crop in a single
country because different areas and crops have different
harvest seasons. Consequently, there is no date at which
world stocks are reduced to anywhere near these levels.
Moreover, for many small countries and for the U.S.S.R. and
P.R.C., reliable data on stocks do not exist. Therefore,
projected ending stocks may not be a good "bottom line"
figure for judging the tightness of supplies.
OF
DEPARTMENT THE TREASURY
THE
THE SECRETARY OF THE TREASURY
WASHINGTON
1789
Dear Mayor Landrieu:
As OMB Director Lynn and I agreed when we met at the
White House with mayors from around the Nation on July 10,
the Administration has carefully reassessed its policy
position with respect to the countercyclical assistance
proposals now pending before the Congress. As Chairman of
the Economic Policy Board, I would like to report to you on
that reassessment.
Our evaluation has led us to conclude that we should
continue to oppose countercyclical assistance. While we
realize that the funds that would be provided to local and
State governments meeting the criteria set forth in the
proposed legislation would be of substantial benefit to many
of them in responding to difficult fiscal situations which
they face, we believe that the program's benefits are out-
weighed by other considerations that pertain to both the
impact of the proposal on the national economy and the merits
of the way the program is designed to operate.
It is our view that specific Federal actions directed
toward achieving economic recovery and mitigating the effects
of unemployment provide a better approach toward correcting
the fiscal difficulties faced by State and local governments
because these actions would ameliorate the underlying reasons
for the problems that exist. Federal initiatives, such as
extended unemployment compensation and tax reduction, are
much more effective in achieving economic recovery than would
be setting up a broad, automatic intergovernmental assistance
program.
Enactment of countercyclical assistance as a new
spending program, in addition to those resources already
committed in our attempt to return to economic stability,
will still further add to the serious Federal deficits we
face this year and next year. At the same time, because
changes in the rate of unemployment tend to lag several
quarters behind changes in the level of economic activity,
- 2 -
use of the unemployment rate as a spending trigger for the
program would extend economic stimulation beyond the early
stage of recovery, thereby generating or accelerating
inflationary pressures.
It is our conclusion the intergovernmental assistance
proposals pending in Congress do not deal with the problem
they are intended to address as equitably or efficiently as
they should. There is always a wide variation in the revenue
and expenditure outlook facing individual State and local
governments, and the local unemployment rate does not neces-
sarily reflect a jurisdiction's fiscal outlook. Even today,
many localities are able to maintain full municipal services
without finding it necessary to raise taxes. Under the pro-
posals, however, such local governments would be entitled to
receive Federal grants. State-local governments historically
have tended to accumulate budgetary reserves in good years to
allow them to maintain expenditures (without major tax
increases) in bad years. If they no longer need to be as
provident because of Federal countercyclical aid, they will
raise expenditures in good as well as bad years. The net
effect of these programs could, therefore, be an expansion of
State and local government spending without much effect on
the stability of such spending.
Even with regard to those governments that would need aid
to maintain services, sufficient distinction is not made
between communities on the basis of either tax effort or tax
structure. A State or city with a low income level that
taxed its own citizens heavily to maintain services would not
get a higher level of benefits than would a wealthier juris-
diction that put forth a relatively lower tax effort.
Other aspects of the countercyclical assistance legisla-
tion before Congress also trouble us. For example, the
measures would add one more uncontrollable program to the
Budget, reducing both the President's and Congress' flexi-
bility. The President is committed to restraining the growth
of Federal spending and has advocated a Federal budget of
$395 billion for fiscal year 1977. This is a crucial first
step toward balancing the budget in three years. With regard
to State and local budgetary planning, countercyclical grants
would, in many instances, be built into local government-based
programs and would place such programs in deficit status when
the grants were phased out, to the extent that local revenues
did not increase as employment increased.
- 3 -
We are sympathetic to the plight of State and local
governments faced with fiscal crisis because of unemployment
and recession. We recognize that governments have had to
cut services being provided to their citizens and to increase
tax burdens in order to respond to conditions that they are
facing. At the same time, we do not believe that counter-
cyclical assistance, which could represent nearly $2 billion
in new Federal spending on top of the about $60 billion now
going annually into grants-in-aid to State and local govern-
ments, is a desirable approach to resolve these problems.
The funds that would be distributed to individual communities
would certainly be of benefit to them. However, because funds
would be distributed widely, the proposal would probably not
make a critical difference to the fiscal survival of any of
them. In contrast, viewing things from the Federal perspec-
tive, it is our conclusion that adding to deficit spending
could have a very adverse impact on the economic recovery
necessary for all segments of our economy, including local
governments, to again prosper.
The Administration has already announced its vigorous
support for the extension of the General Revenue Sharing
program. We believe that this program, which currently
provides over $6 billion a year to State and local govern-
ments, is effective in providing a reasonable level of general
fiscal assistance to governments throughout the Nation. When
considered along with categorical and block grants presently
going to State and local governments, we feel that the total
amount of Federal aid committed under existing programs, more
than $60 billion during this fiscal year, is the maximum that
we can responsibly provide, given the economic and fiscal
conditions we face.
Sincerely yours,
William E. Simon
Chairman
Economic Policy Board
The Honorable
Moon Landrieu
President
Conference of Mayors
1620 I Street, N.W.
Washington, D.C. 20006