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Analysis: State and Local Fiscal Assistance Act Amendments of 1975 [Report]
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Analysis: State and Local Fiscal Assistance Act Amendments of 1975 [Report]
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Digitized from Box 10 of the White House Press Releases at the Gerald R. Ford Presidential Library
[4-25-75]
ANALYSIS
STATE AND LOCAL FISCAL ASSISTANCE ACT AMENDMENTS OF 1975
Section 1
The amount of a recipient government's revenue sharing allocation is
determined by the data factors of that government relative to the data
factors of all other competing governments. In the process of improving
the data, it is sometimes necessary to make data corrections after the
final allocation of funds, and after the period during which the vast
majority of data corrections have been processed. Each data correction
of this type, absent a special procedure, would result in retroactive
changes to the allocations and payments of many governments which had
expended the funds or had come to rely on those allocations and payments
for budgetary purposes.
To mitigate the inequity arising from this unfortunate but inevitable
circumstance, 31 CFR 51.25(a) has been promulgated. It establishes an
Obligated Adjustment Reserve that is funded by administratively holding
in reserve a small percentage (.005) of the revenue sharing funds appro-
priated for each entitlement period from which adjustments can be made
to alleviate hardships caused by prior misallocations. The amount of
revenue sharing funds held in reserve and the decision to make adjustment
payments is determined at the discretion of the Secretary, as the equity
of the situation requires.
The creation of the Reserve Fund has proved necessary for the
orderly administration of the General Revenue Sharing program due to the
- 2 -
complexity of the allocation process. The proposed amendment to section
102 of the Act is recommended in the first section of the bill to clarify
the authority of the Secretary to make adjustments in this manner.
Section 2
Section 105(b)(1) of the present Act provides for the periodic appro-
priation of funds from the general fund of the Treasury to the State and
Local Government Fiscal Assistance Trust Fund. Funding under this section
is provided through December 31, 1976, with an increase of $150 million each
full fiscal year with the exception of early periods and the last period of
six months. That six-month period also provides for a step increase of
$150 million.
Clause (1) of section 2 of the bill provides for a continuation of the
General Revenue Sharing program for 5-3/4 additional years, concluding with
the fiscal year beginning October 1, 1981. This recommendation strikes a
reasonable balance between the need of recipient governments for fiscal
stability and the legitimate desire of the Federal Executive and the Congress
to review the law in the light of future national economic concerns. Thus,
the total amount to be distributed under the 5-3/4-year renewal program is
$39.85 billion, which includes $75 million moved forward from the final six
months of the current program. The original Act provided for a $150 million
increase for the six-month entitlement period which was to end the GRS program.
Since the program is to be extended, the legislation seeks to continue linear
$150 million annual stairstep increases in funding level.
The amendment also creates a three-month appropriation period beginning
July 1, 1976, and ending September 30, 1976, to provide for the transition to
- 3 - -
the new October 1 Federal fiscal year. The entitlement period beginning
July 1, 1976, combines this quarter with the following fiscal year so that
the entitlement period would end on September 30, 1977.
When the revenue sharing allocation of Alaska or Hawaii is determined
by the three-factor allocation formula, it becomes eligible for the non-
contiguous State adjustment. Pursuant to section 106(c) of the Act, an
adjustment may be made to the basic allocation for these States in which
civilian employees of the U.S. Government receive an allowance under 5 U.S.C.
section 5941. Section 105(b)(2) appropriates the funds used to make this
adjustment.
Clause (2) of section 2 of the bill would amend section 105(b)(2) by
extending this appropriation at the existing rate of $4,780,000 per year.
Further, this amendment, like that of clause (1) of section 2 above, would
result in two appropriation periods being combined under the new fifteen-
month entitlement period proposed for section 141(b). This will allow for
the transition to the new Federal fiscal year and at the same time identify
all the appropriations being proposed for this section, including the transi-
tion quarter.
Clause (3) of section 2 of the bill would amend section 105 of the
Act to add subsections (d) and (e). The new subsection (d) provides that
the funds appropriated for the extension of the General Revenue Sharing
program are exempt from the appropriation procedures of section 401 (a) and
(b) of the Congressional Budget Act of 1974 (P.L. 93-344). This Act
specifically provides that any extension of the General Revenue Sharing
program is eligible for this exemption. The appropriation of funds at
- 4 -
the outset for the extension of the General Revenue Sharing program is
vitally important to recipient governments to assist them in planning
for their service programs, capital improvement programs, and financial
policies without being subject to the inherent delays and uncertainties
of the annual appropriation process.
The new subsection (e) provides that the Secretary of the Treasury
shall submit a report, with recommendations concerning the extension of
the Act, to the Congress two years before the expiration of funding under
this bill. A requirement to review the renewal of the General Revenue
Sharing program two years in advance of its expiration would remove much
of the uncertainty for State and local governments regarding availability
of future funds and would provide the Congress adequate time to review
the program.
Section 3
Section 107(b)(5) of the Act provides a special rule to measure
State assistance to local governments during the six-month-long entitle-
ment period (July 1, 1976 - December 31, 1976). This provision is no
longer needed in view of the fact that this legislation would replace
the six-month entitlement period with a new longer entitlement period.
Accordingly, it is proposed that section 107(b) be amended to delete
paragraph (5). In situations in which either the recipient government's
fiscal year does not coincide with an entitlement period or where an
entitlement period is greater than or less than a full year, the Office
of Revenue Sharing has provided by regulation (31 CFR 51.26) that the
5
(B) the day after the date of enactment of this
Act.
(c) TRANSFERS FROM TRUST FUND TO GENERAL FUND. The Secretary
shall from time to time transfer from the Trust Fund to the general fund
of the Treasury any moneys in the Trust Fund which he determines will
not be needed to make payments to State governments and units of local
government under this subtitle.
(d) NEW SPENDING AUTHORITY EXEMPTION. -- Funds appropriated
pursuant to subsection (b) (1) and (2) are exempt from the provisions
of sections 401 (a) and (b) of the Congressional Budget Act of 1974.
(e) SECRETARY'S REPORT ON EXTENSION. - No later than September 30,
1980, the Secretary shall submit a report with appropriate recommenda-
tions concerning the extension of this title to the Congress.
SEC. 107. ENTITLEMENTS OF STATE GOVERNMENTS
*
*
*
(b) STATE MUST MAINTAIN TRANSFERS TO LOCAL
GOVERNMENTS.
*
*
*
[(5) SPECIAL RULE FOR PERIOD BEGINNING JULY 1, 1976.
In the case of the entitlement period beginning July 1, 1976,
and ending December 31, 1976, the aggregate amount taken into
account under paragraph (1) (A) for the preceding entitlement
period and the aggregate amount taken into account under paragraph
- 6 -
treated the same as a waiver by any other unit of local government, and
the amount waived should be added to the county government entitlement.
Section 4(a) of the bill would accomplish that purpose.
Section 4(b) of the bill provides that beginning with the entitlement
period that begins on July 1, 1976, the present maximum limitation on the
amount of revenue sharing entitlements be raised. In order to insure that
some communities would not receive extremely high or low allocations, the
maximum and minimum limitations on the revenue sharing allocations to
county areas and units of local government were imposed upon the revenue
sharing formula. Under the current law, the maximum limitation for any
county area or local government in a State is 145 percent of the per capita
allocation to all local governments in the State.
The effect of this 145 percent maximum is as follows: after the
entitlements of local governments within a State are computed according
to the formula, any jurisdiction which is entitled to receive more than
145 percent of the average per capita allocation to all local governments
in that State has its allocation reduced to the 145 percent level. The
funds taken from these jurisdictions, which are generally characterized
by low-income population and high levels of tax effort, are then redis-
tributed according to the formula to the remaining jurisdictions within
the State which are not so constrained and which would otherwise receive
smaller amounts.
To reduce the impact on local governments which have been receiving
additional funds that are redistributed because of the operation of the
- 7 -
145 percent constraint upon other jurisdictions within their State, the
maximum allocation constraint would be raised gradually, in five steps,
by an increase of 6 percentage points per entitlement period until a new
maximum constraint level of 175 percent is reached. The purpose of rais-
ing the maximum per capita allocation constraint to 175 percent is to
allow low personal income and high tax effort to be more fully reflected
in the operation of the basic formula.
Due to the responsiveness of the revenue sharing formulas to
changes in data--the allocation of revenue sharing funds is based on
annually changing data elements such as adjusted taxes, and on period-
ically updated data elements such as per capita income and population--
the effect of this proposed change will vary in any entitlement period
and from State to State. As a result of the gradual phase-in, and as a
result of the stairstep increases in the total amount being distributed
each entitlement period, however, the potential losses to almost all
jurisdictions in any given year should be fully offset so that they
will not suffer an actual decrease in their revenue sharing payments as
a consequence of this change.
Increasing the maximum constraint as proposed will, as a general
rule, cause increased revenue sharing funds to be received by the 4,000
places that have been constrained in the past. These places include both
major cities and smaller jurisdictions. Approximately 23,000 places would
no longer receive additional redistributed funds from the constrained
- 8 -
places, but the amount involved for any given place is relatively small.
Had the 175 percent constraint limitation been fully implemented in FY 1974,
these 23,000 places would have received an average of $3,000 less than they
were actually paid in FY 1974, which is an average 2.2 percent less than
they actually received.
Section 108(c) of the Act enables State governments, by enactment of
a State law, to adopt an alternative formula for the distribution of
revenue sharing allocations among the county areas and among the munici-
palities located therein. Section 4(c) of the bill amends section
108(c)(1)(C) for the sole purpose of reflecting the extension of the
General Revenue Sharing appropriations until September 30, 1982.
Section 5
Section 109(a)(5) of the present Act states that, except as provided
in the regulations, the determination of allocations and entitlements for
any entitlement period shall be made as of the first day of the third
month immediately preceding the beginning of each period. Further,
section 109(a)(7) provides for uniformity of data and states the general
rule that the data shall be the most recently available data. These pro-
visions are effective and permit the orderly computation of entitlements
before the beginning of each period so that States and local governments
may be advised, for planning purposes and for purposes of informing their
citizens, well before payments are made. In section 109(c)(2)(B) the
definition of the general tax effort for States defines the most recent
- 9 -
reporting year as the one taken into account by the Bureau of the Census
prior to the close of that entitlement period. This definition appears to
conflict with the definition for all other data items and appears to con-
flict with the earlier section providing for uniformity of data and for
computation of entitlements three months before the beginning of an
entitlement period.
Were this non-conforming definition to be given precedence, it would
necessitate substitution of these data during an entitlement period while
payments were being made, and would result in changing the entitlements for
all 38,000 recipient governments during the middle of the payment year.
Section 5 of the bill would eliminate this non-conforming language by
amending section 109(c)(2)(B) by deleting the word "close" in the phrase
"made before the close of each period", and inserting in lieu thereof the
word "beginning". Thus, the phrase would read, "made before the beginning
of such period". In this way, data from which the general tax effort factor
is computed, and which is published by the Department of Commerce by October
of each year, would be used for the computation of the entitlement period
beginning in the following year, and no tax effort adjustments to the
general universe of recipients would be necessary.
Section 6
Section 121(a) of the Act requires States and units of local govern-
ment to submit a report to the Secretary of the Treasury at the close of
- 10 -
each entitlement period setting forth the amounts and purposes for which
funds received during such period have been spent or obligated. The
purpose of this section is to keep the Secretary and the public abreast
of how recipient governments are spending their General Revenue Sharing
funds.
Attempts to measure the various effects General Revenue Sharing funds
have had on recipient governments from the Actual Use Reports submitted
to date have met with only limited success. Section 6(a) of the bill is
intended to give the Secretary more discretion to determine the form and
content of the reports submitted under section 121(a) of the Act. This
additional authority to regulate the substantive content of the Actual
Use Reports will be used to require recipient governments to report fin-
ancial and use information in a fashion that is more meaningful to the
general public, to the Congress, and to the Executive Branch.
Section 121(b) of the Act requires States and units of local govern-
ment expecting to receive revenue sharing funds for any entitlement
period to submit a report to the Secretary of the Treasury setting forth
the amounts and purposes for which they plan to spend or obligate the
funds during such period. The so-called Planned Use Report is intended
to be used to inform the Secretary and the public as to how recipient
governments plan to expend their General Revenue Sharing funds.
Section 6(b) of the bill is intended to serve the same function for
the Planned Use Reports as section 6(a) serves for the Actual Use Reports.
In each case, we believe the effectiveness of the reports could be
- 11 -
significantly enhanced if the Secretary were allowed more administrative
discretion to determine their content. The present requirement that the
Planned Use Report set forth the amounts and purposes for which the
recipient government plans to spend or obligate the funds does provide bene-
ficial information. However, section 6(b) would make it possible for the
reports to provide data that is more useful to local citizens and the
Federal Government.
Section 121(c) of the Act requires each recipient government to
publish a copy of each report which it submits to the Office of Revenue
Sharing in a newspaper which is published within the State and has
general circulation within the geographical area of that government.
Based on our administrative experience, this section should be modified.
The Office of Revenue Sharing has received a large number of complaints,
particularly from small units of government, regarding the relatively
high cost of publication. Some small governments receiving less than
$1,000 have had to spend $100 or more for publication due to a variety
of local circumstances. In other instances, the unavailability of a
newspaper circulating generally within the geographical area of a county
has been called to our attention. In still other cases, we have been
advised that there are more effective ways to get the information con-
tained in the report to the citizens of the community.
Section 6(c) of the bill would amend section 121(c) to authorize the
Secretary to establish alternative procedures where it is determined that
the requirement of publication in a newspaper is unreasonably expensive
- 12 -
in relation to the amount of revenue sharing funds involved, or, where
the Secretary finds that in terms of public understanding, there are
better methods to get the information before the residents of the com-
munity.
Section 7
Section 122(a) of the Act provides that no person in the United
States shall on the ground of race, color, national origin, or sex be
excluded from participation in, be denied the benefits of, or be sub-
jected to discrimination under any program or activity funded in whole
or in part with revenue sharing funds. The statutory authority of the
Secretary of the Treasury to enforce the above nondiscrimination pro-
vision is set forth in section 122(b) of the Act. It presently states
that upon a determination by the Secretary that a recipient has failed
to comply with subsection 122(a), and after notification to the Governor
of the State (or, in the case of a unit of local government, the
Governor of the State in which such unit is located) and after failure
to secure voluntary compliance within a reasonable period of time, the
Secretary may either: refer the matter to the Attorney General with a
recommendation that an appropriate civil action be instituted; exercise
the powers and functions provided by Title VI of the Civil Rights Act of
1964 (42 U.S.C. 2000d); or take such other action as may be provided by
law.
Title VI of the Civil Rights Act of 1964 prohibits discrimination in
the use of Federal financial assistance by way of grant, loan, or contract,
- 13 -
(42 U.S.C. 2000d-1). In order to receive such assistance, generally the
State or local government must file an application satisfying the require-
ments of the particular program. Revenue sharing payments are based on a
statutory entitlement for which States and units of local government are
automatically eligible pursuant to section 102 of the Act. The Secretary
has no discretion to approve or disapprove in advance payments to any
participating recipient government after certain minimal statutory re-
quirements are met.
Recognizing the unique aspects of revenue sharing entitlements,
section 7 of the bill is intended to express clearly in the Act certain
authority of the Secretary in applying the nondiscrimination provisions
of section 122. This is accomplished by stating explicitly that the
Secretary has authority to withhold all or a portion of entitlement funds
due a State or unit of local government, to terminate one or more payments
of entitlement funds, and to require repayment of entitlement funds pre-
viously expended in a program or activity found to have been in violation
of subsection (a). The changes in section 122 will further enhance the
Secretary's ability to ensure that entitlement funds are not utilized in
a discriminatory manner.
Section 8
:
Broad public participation in State and local decision making as to
how revenue sharing funds are to be expended is an essential ingredient
of General Revenue Sharing. For this reason, section 121 (c) requires
that the news media be notified when the Planned Use and Actual Use
Reports are published in a local newspaper. By regulation, recipient
- 14 -
governments must also make these reports available to the general public.
Additionally, to encourage citizen involvement, section 123(a)(4) of the
Act requires recipient governments to provide for the expenditure of
revenue sharing funds only in accordance with the laws and appropriation
procedures which are applicable to the expenditure of their own revenues.
Clause (1) of section 8 of the bill would further strengthen the
general public's role in the General Revenue Sharing process. It amends
section 123(a)(5) of the Act to the extent that in order to qualify for
revenue sharing funds, a State or unit of local government must establish
to the satisfaction of the Secretary of the Treasury that it will provide
the residents under its jurisdiction with an opportunity to give their
recommendations and views on how the revenue sharing funds should be spent.
This opportunity for public involvement may be provided either in a public
hearing or, where appropriate, by other means prescribed in regulations
to be issued by the Secretary of the Treasury. This amendment would serve
to ensure that all recipient governments, regardless of whether they have
State or local public participation requirements, will include the public
in the decision-making process on the expenditure of revenue sharing
funds.
Section 123(a)(8) of the Act provides that Indian tribes and Alaskan
native villages must spend their revenue sharing funds for the benefit
of members of the tribe or village residing in the county area from which
its revenue sharing entitlement originates. This provision affects Indian
- 15 -
reservations which are located in more than one county, thus resulting
in the tribe receiving separate revenue sharing allocations from each
county area.
Clause (2) of section 8 proposes to eliminate this provision for
two reasons. First, it is very difficult for the Indian government to
administer since it demands that an analysis be made of each proposed
revenue sharing expenditure to ensure that the proper percentage of
residents in the applicable counties will benfit in proportion to the
percentage of revenue sharing funds generated from each county. Second,
this requirement frustrates reservation-wide planning by limiting the
capacity of the tribal government to concentrate its revenue sharing
expenditures in areas which have the highest priority.
Section 9
Section 141 of the Act defines the entitlement periods which govern
the distribution of funds to recipient governments. Section 9 of the
bill would revise the last entitlement period (July 1, 1976, to
December 31, 1976) by extending it to September 30, 1977. This fifteen-
month entitlement period would provide for the transition to the new
Federal fiscal year and would combine the appropriations of subpara-
graph (G) and proposed subparagraph (H) of section 105(b)(1). Also,
section 141 would be amended to extend the General Revenue Sharing
program until September 30, 1982.