Runway Spending Brings Crisis in Local Governments; L. Sullivan

RUNAWAY SPENDING BRINGS CRISIS IN LOCAL GOVERNMENTS t'J J!awrence Sullivan ALL local government in the United States is in deep financial distress. Inflation is increasing costs much faster than the cities, counties, and states can find' new sources of revenue. In their 1959 sessions virtually all our state legislatures face difficult budget deficits. The current deficit in California ranges between $200 million and $250 million, the final figure to be deter mined by administrative decisions. With a budget of $2 billion for New York State, Gov ernor Rockefeller recommended an increase in the state gasoline tax from 4 cents to 6 cents a gallon, plus higher state income tax rates, and more local taxes on cigarettes. In all, new taxes requested total $277 million a year. In Massachusetts, Governor Furcolo asked the legisla ture for $90 million a year in new taxes. "No other Gov ernor in the history of Massachusetts ever has asked for so much in new revenues at one time," says the Massa chusetts budget survey.

Mr. Sullivan is Co-ordinator of Information of the U. S. House of Represen tatives. 121 122 LAWRENCE SULLIVAN An official study in Connecticut found "the big prob lem is how to meet growing state expenses without oper ating in the red." The Idaho survey concluded, "How to raise $15 mil lion for schools is a problem." From Illinois: "Lawmakers must scratch for new funds for both hospitals and schools." Maryland needs more new revenues to finance a gen eral increase in teachers' pay promised last year. Michigan faces a deficit of $65 million this year. The legislature had before it 13 specific proposals for tax increases. Montana faces a current deficit of $5 million. Oregon discovered a crisis in her unemployment trust fund, plus an embarrassing deficit in her operating budget. South 'Carolina faces a deficit of $15 million. Texas faces a deficit of $55 million this year, and $74 million next year, if all presently authorized programs are expanded at the rate now fixed by law.

Washington State faces a deficit of $80 million this year. Other states seeking new revenues to avert 1959 deficits are Alabama, Colorado, Georgia, Minnesota, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Okla homa, Rhode Island, South Dakota, Wisconsin, and Wyoming. Washington, D. C. is no exception to the rule for cities. Early in January a committee of the House of Represen tatives warned the commissioners for the District of CoRUNAWAY SPENDING BRINGS CRISIS 123 lumbia against their rapidly expanding municipal pay roll. "The percentage of payroll increase in the District of Columbia has gone up in recent years far more than in any other similar city in the population class." In 1952, Washington, D. C. carried 19,676 on the city pay roll; the current total is 23,421. A 1957 survey by the Federal Reserve Bank of Phila delphia reported that state and local budgets have in creased from less than 5 per cent of the gross national product in 1946, to 9 per cent for 1956.

Taxes and Debts Almost without exception since 1953 all local and state government units in Pennsylvania and New Jersey have been operating in the red. Some now approach the limits of their borrowing power. This Federal Reserve study relates the stormy meeting of a local school board which demanded an immediate new school. "But ends barely meet as it is," the treasurer inter rupted. "How are we going to pay for a new building? We still owe a lot of money on the gym we built in 1953. We'll have to have higher taxes before we can take on anything more." "I don't think the public will stand for more taxes," another member of the board interjected. "We've already raised taxes twice, and people are beginning to grumble." U. S. Budget Director Maurice H. Stans tells of a meet ing to discuss a new bridge in the Midwest. Part of the 124 LAWRENCE SULLIVAN cost was to be borne by the· city, state, and county, but no division of allotments could be agreed upon. "Every body was unhappy, and there was no solution in sight until one fellow at the end of the table suggested brightly: 'Let's get the money from Washington-then nobody'll have to pay for it.' "

In 1946 state and local spending was only 18 per cent of all governmental spending in the U. S. Today the state and local total makes 36 per cent of all public spending. Three states in the Northeast and all their cities over 25,000 population went into the red by a total of $1.4 billions during the four fiscal years, 1953-56 inclusive. Growing deficits in Dixie were surveyed in the Janu ary 1959 bulletin of the Atlanta Federal Reserve Bank. "State and local governments borrowed at a record rate in 1958.... The borrowing trend of state and local gov ernments in the [Atlanta] District still appears to be up ward .... The demand for public services continues un abated and, in a sense, feeds upon itself .... Although some new sources of revenue may still be untapped, they are certainly dwindling .... The time, therefore, may be approaching when the public must choose between a school or a shiny new automobile, a sewer or a new television set."

Population increase, of course, justifies some annual increase in local budgets. Since 1946 city and county populations have increased by roughly 25 per cent on national averages. In most urban areas, per capita income has increased upwards of 60 per cent since 1946. There is hardly a RUNA WAY SPENDING BRINGS CRISIS 125 community in the country which could not afford to sus tain normal growth in public services out of current in come. But what community can cover the pinch of inflation, when it costs $2.46 today to duplicate what $1.00 brought in new construction in 1945? In 1945 hospital construction was estimated on the basis of $10,000 per bed. Today's hospitals are calculated on the basis of $25,000 per bed. "Charge it!" appears to be the guiding mood of the city fathers everywhere. Thus, budget demands have far exceeded, percentage wise, both population growth and improvement in per capita income. Extravagance approaching public pro fligacy at the state and local levels is another grave factor in today's fiscal crisis. Local taxpayers must take matters in hand. In many areas, grumbling taxpayers already are looking to their political powder horns.

A revealing incident epitomizing the Wallingford spending mood of local supervisors comes to light in Montgomery County, Maryland, a wealthy and booming suburban area adjoining Washington, D. C. For many years new schools were located on 5-acre plots. Recent county regulations make the new area 30 acres per school -the legal limit on areas taken by eminent domain. In one instance the school site alone, with road frontage and storm drainage, cost $10,000 per acre-or a total of $300,000 before ground was broken for the new school! Many suburban counties across the land today face critical shortages of schoolrooms. Yet scores of these same 126 LAWRENCE SULLIVAN counties already have launched junior colleges, extend ing public education through two or four years of college, while some of their first and second grades still are on split-shifts, or housed in quonset-type tempos. New roads and streets necessarily deferred during the wartime restrictions on building materials, create another major problem in local finances. Since the war, auto reg istration has doubled in most states. But no community has yet caught up with this growth, plus the backlog of streets and highways neglected during the years 1941-46.

And all this highway development postponed during the war then fell on top of a mountain of deferred extensions accumulated during the depression years 1932-42, when most cities and counties maintained their fiscal equi librium only by avoiding all expansion and renewal of streets, alleys, and highways. In most areas, however, these deferred highway de mands overlapped similar wartime backlogs in hospitals, schools, waterworks, and fire prevention. Trying to catch up all at once, during the last decade, with 25 years of deferred demand plus a 25 per cent population increase presents the raw skeleton of today's national crisis in local finances. First Things First Every state and every local board faces the stern task of perfecting a slate of orderly priorities on public im provements.N 0 community can do everything at once today's controlling mood.

RUNAWAY SPENDING BRINGS CRISIS 127 Extravagance must be curbed through alert public auditing committees of taxpayers. With federal aid avail able in virtually every facet of local operations, the ten dency to conceal real costs from local taxpayers is becom ing a dangerous national habit. Trick budgets are strong encouragement to runaway spending. Hardly a city, county, or state in the U. S. to day presents its annual budget in two columns headed income and outgo. Instead, every budget is a maze of "segregated revenues," "earmarked funds," "special pur-: pose taxes," "statutory items," and "restricted revenues" -until the poor, befuddled taxpayer has difficulty deter mining whether his community is really in the black, or hopelessly overboard with "deferred capital items." It should not be necessary for citizens to hire profes sional CPA's to find out what their local budgets add up to from year to year.

Honest budgets, and straight-away accounting state ments published monthly by legal requirement, would permit the taxpayers to know what their master·planners are doing to them from month to month. In many urban areas today new apartment buildings are being constructed which yield to the local govern ment roughly $150 a year per unit in taxes. But each apartment gives, on national averages, 1.8 pupils to the public school system. Each pupil costs the county about $200 per year. So each apartment adds $360 a year to the school budget, and contributes approximately $150 a year in taxes! This is jocularly called "urban renewal." Such is the road traveled today by literally thousands 128 LAWRENCE SULLIVAN of growing communities-the very core of the ever· increasing wail for more and more systems of federal aid. Government Takes One-third But with the federal establishment currently in the red at $12 billion a year, there are no longer any untapped revenues, anywhere, to supply the local deficits.

Total taxes in America today-federal, state, and local -take 28 per cent of the gross national product every year. And total government spending consumes 30 to 33 per cent of the gross national product. One reputable tax authority estimates that every employed person in America now works until April 14 merely to pay his year's taxes. Then, on April 15, he starts to work for him self and his family. Classical theories of taxation teach that no community can sustain itself in a state of solvency when the total tax burden exceeds 20 per cent of the gross product. Ameri cans have been paying more than 20 per cent since 1940. And today state and local expenditures combined are in creasing by more than 10 per cent a year, and state and local debt since 1940 has increased at the average rate of 12 per cent per year. Congressman Wilbur D. Mills of Arkansas, Chairman of the House Ways and Means Committee, presents vig orously the crux of the revenue problem at all levels of government: "In recent years one popular way of imag ining ourselves out of this problem has been to assume that the increase in revenues resulting from the growth RUNAWAY SPENDING BRINGS CRISIS 129 of the economy will outstrip government. expenditures."

Only one figure need be cited to explode this theory, Congressman Mills insists; total public debt has increased steadily from $38.7 billions in 1932 to $333 billions at the end of 1958. During the same period, gross national product has increased from $56 billion a year to the present $450 billion. During the last quarter-century our gross national product has been multiplied by 8 but total governmental expenditures have been multiplied by 10. Only effective public disciplines can stop this headlong rush toward inflation, national bankruptcy, and chaos. Obviously, we are all in for some stern local budgets. Somehow, we must devise, at every level of govern ment, a system of buying only what we can afford. Economists have recognized since history began that there is ,.no end of human wants. Only the disciplines of civilization can hold public spending within the limits of community resources. Taxpayers are now aware that many of the welfare-state luxuries devised during the last quarter-century are still carried on the cuff of the public debt.

True, some one group in every community regards each program of public service as indispensable to human felicity. Public belt-tightening means simply that each community must somehow arrive at a solid public judg ment on what the local treasury can afford. Tested by this standard, every program must have a controlling relative importance. And that is where the public belt130 LAWRENCE SULLIVAN tightening must begin-at the first program, or extrava gance, the community decides it cannot afford. There is an ancient adage in political science which teaches that any government big enough to give the folks everything they want is big enough to take away every thing they've got. Local budgets are more than a fiscal problem, more than an economic issue. Balanced budgets today are a moral issue of the first order.