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the major problems cities encounter with HUD's water and sewer program is an arbitrary limit on the dollar amounts for each project. This is unrealistic limitation for capital works that have city-wide and regional implications. We thank you for this opportunity to present the views of the National League of Cities and the U.S. Conference of Mayors. The needs are there, and cannot wait to be met if we are to have rational growth and development, for our urban and nonurban areas alike, and if we are to have a clean environment. That is why we are here testifying in support of the "Emergency Community Facilities and Public Investments Act of 1972.If there are any questions, we shall be pleased to answer them.

SUPPLEMENTAL STATEMENT OF NATIONAL LEAGUE OF CITIES AND U.S.

CONFERENCE OF MAYORS On Local REVENUE EFFORT I realize this is a time of unprecedented demands on the federal budget. Any one of our nation's domestic needs deserve high priority. We could spend all the money available just for any one-and that could take the entire resources of this country. We can't do that, and we know it.

The nation's cities are not here asking for more federal dollars because we're unwilling to raise them at home. Cities are facing a total revenue gap estimated at $262 billion between 1966 and 1975. Cities will raise $25 billion in increased city charges, and $63 billion in net city debt. But $125 billion must come from the Federal Government.

The National League of Cities ordered TEMPO, General Electric's Company's Center for Advanced Studies to develop an objective economic study of the revenue

gap

facing cities. The TEMPO Report issued in January, 1967 found that the nation's cities face a staggering $262 billion revenue gap -$125 billion of which can only be closed by the federal government-over the ten year period 1966-1975. The projections were done based upon dates developed by the Joint Economic Committee (See Table I below).

TABLE 1.-ESTIMATED ANNUAL REVENUE GAPS AND RECOMMENDED FUNDING SOURCES FOR THE 1966-75

PERIOD

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State and local taxes have risen from 5.6% of GNP in 1950, to 7.2% in 1960, to 8.5% in 1968–1969. Since 1963, a total of 113 cities which levy specific charges to support refuse collection have increased their total charge by an average of 59%. A total of 218 cities levy charges for sanitary sewer service, and 154 of these have increased charges by an average of 77% during the same period.

Since cities are creatures of their states, with mandated costs and services, but also with state-imposed limitations on the type and amount of taxes that may be raised, many cities have responded to this revenue gap by reducing city expenditures and capital improvements. The 1972 Municipal Yearbook reports that 70 cities out of 193 specifically reduced to lack of funds and 4% to bonding problems.

But, generally speaking, cities cannot either legally or practically raise their taxes. The major tax source for most cities is the property tax. However, most cities have a maximum limit for property taxation imposed by state law or con

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stitutions and most cities are at their limit. Other cities which are not at their limit find increasing property taxes is practically impossible. These cities usually have independent school districts who have also utilized the property tax as the major source of education revenues. As education costs soared over the last few decades, property taxes for education increased significantly. The property taxpayer is caught in the squeeze. He does not discriminate between property taxes paid for city services or education. He only knows that his property taxes are exorbitantly high. Today's "taxpayer revolt” is largely due to the substantial increases in the property tax by independent school districts. Consequently, cities are “boxed-in" both legally and practically from levying higher property taxes.

Because of the limited revenues that cities can derive from the property tax, they have over the last few decades, increasingly turned to the sales tax. Invariably, for the cities to obtain sales taxing power, they have had to seek legislative authority from their state governments. At the same time, states have claimed the sales tax as a major source of revenue. Thus, cities find it almost impossible to gain further authority to increase sales taxes, when the states are looking towards the same form of taxing power for their own needs.

Since cities are limited in sales and property taxing powers, they have increasingly turned to service charges as a form of revenue. The service charge is a fee charged to the "consumer" for a service rendered. But service charges have not come close to solving the urban fiscal crisis.

Some of the more hard-pressed cities have secured the income taxing power from their state legislatures. But even where the power has been granted it is severely limited by the state legislatures. In all other cases, cities are prohibited from levying income taxes without state legislation or constitutional amendment. The only exception is Ohio, where cities have utilized the income taxing power under a home rule provision in the state constitution. (In Ohio, revenues of cities levying the income tax almost equal the amount received from property taxes.) But, even in Ohio where this constitutional authority exists, the state legislature has put a ceiling on the amount of taxes cities can impose.

Except for the income tax-property tax, sales tax and service charges are highly regressive in nature. To increase these taxes means that the poor and the middle income citizens are paying proportionally more than the rich. Nevertheless, the demand for public services in the cities continues to grow. Without general revenue sharing, cities will be forced, one way or another, to increase such regres

Besides being regressive, local taxes do not grow with the economy. While the national government can count on automatic higher revenue yields generated by economic growth to accommodate most growing needs, almost every year state and local policy makers are forced to take the politically risky course in imposing new taxes and raising the rates of existing taxes to meet the rising expenditure requirement of an urbanized society. In 1960, 19 states were imposing both general sales and personal income tax. Ten years later, the number had climbed to 33. Over this same time period, the growth in sales and local taxes collection outpaced national economic growth. State and local taxes rose from the equivalent of 7.2% to gross national product in 1960 to 8.5% of gross national product at the close of the decade. A study by the Advisory Commission on Intergovernmental Relations revealed that between 1950 and 1967 only 47% of the increase in major state taxes-income, and general and selective tax-were the result of economic growth while 53% resulted from legislative enactment.

The CHAIRMAN. Well, thank you, sir. We will first have the other witnesses testify and if you want to make your statements briefer than the text you have prepared it will be satisfactory, with the understanding that each one will be allowed to place his entire text into the record and also to extend your remarks when you pass on your transcript.

The committee has had hearings on this subject over a 10-year period. Every year we have had testimony along this line. So we are not without testimony at all. But we would like for you gentlemen to bring us up to date. That is the object of this hearing. Now it is possible that we will get through these hearings today. If we do we will have a vote on it tomorrow. So after each one has testified then we will yield

sive taxes.

to each member of the committee who will be allowed to ask questions of you gentlemen.

So the next witness will be Mr. R. J. Alexander, director of public works, Oakland County, Michigan.

Mr. Alexander, we are glad to have you, sir, and you may proceed your own way.

STATEMENT OF R. J. ALEXANDER, DIRECTOR OF PUBLIC WORKS,

OAKLAND COUNTY, MICH., ON BEHALF OF THE NATIONAL ASSOCIATION OF COUNTIES; ACCOMPANIED BY JOHN C. MURPHY, LEGISLATIVE REPRESENTATIVE, NATIONAL ASSOCIATION OF COUNTIES

Mr. ALEXANDER. Thank you, Mr. Chairman and members of the committee.

My name is R. J. Alexander, and I am the director of public works of Oakland County, Michigan. I also serve as the chairman of the Planning Advisory Council of the Southeastern Michigan Council of Governments (SEMCOG). I am a former mayor of Oak Park, Mich., an office in which I served for 9 years. It is a great honor to testify before this distinguished committee today on behalf of the National Association of Counties. Accompanying me is John C. Murphy, legislative representative for the National Association of Counties.

The National Association of Counties represents nearly 900 county governments which together comprise approximately 70 percent of the Nation's population. NACо's legislative policies are developed by seven policy steering committees, each steering committee being composed of 45 elected and appointed county officials. The recommendations of the steering committees have to be approved by our 70-member board of directors, and the delegates attending NACо's annual meetings before they become official policies of the National Association of Counties. The point is to indicate the broad base of support for our policy statements.

Counties are taking on an increasing number of municipal responsibilities at the local and regional levels. County government activity has expanded into functions and service areas once considered exclusively municipal-parks and recreation, libraries, airports, hospitals, health services and utility systems. County governments are quicklyexpanding their functions into entirely new areas-solid waste management, water and air pollution control, emergency ambulance service, and highway safety. Counties, of course, have always played a large role in our health, welfare, and highway transportation programs. As a result of these added responsibilities, total county employees have increased from 700,000 in 1960 to over 1,200,000 today.

The National Association of Counties strongly supports the “emergency Community Facilities and Public Investment Act of 1970" (H.R. 13853). There is no question of the need for greatly increased funding for the HUD water and sewer program. There is more demand for this progra 1 by county and municipal governments in the developing parts of metropolitan areas than for any other HUD program. NAČI was indeed disappointed to see the House defeat a recent amendment, offered by Congressman Stephens, to the fiscal year 1972 supplemental appropriations bill appropriating $650 million for the HUD water and sewer program. While by no means meeting all existing needs for water and sewer facilities, these additional moneys appropriated by the amendment would certainly have helped.

An analysis performed by the NACo staff last year revealed that HUD has turned down more than $2.5 billion in local water and sewer grant applications since the program began in 1966. Total project costs of these grant applications amounted to approximately $5.5 billion. Most of these grant applications were returned to the counties and other local governments because of a lack of Federal funds. We have attached to our statement a table which shows the amounts of applications not funded for each State. The $2.5 billion figure does not reflect the real needs of counties and local governments for water and sewer assistance. Many local governments in the past 2 years have been strongly discouraged by HUD Area Offices from submitting further applications. It is our belief that if more Federal assistance were available most local governments could double the dollar amount of applications previously submitted to HUD and thereby begin to meet the critical need for these facilities on the local level. Thus, the authorization of $5 billion proposed in H.R. 13853 seems to us appropriate in light of what we estimate total national needs to be.

The committee is, of course, quite aware of the current impoundment of water and sewer funds by the Office of Management and Budget. In fiscal year 1971, the Congress appropriated $350 million of which $200 million was frozen. In fiscal year 1972, the Congress appropriated $500 million of which $300 million is currently frozen. Thus, a total of $500 million, although appropriated, is not being made available to meet critical needs. Rather, the administration is proposing to carry over and allocate $200 million of that which is frozen for fiscal year 1973. This simply does not meet the needs existing

The House has recently passed a strong and far reaching water pollution control bill, authorizing $18 billion for the construction of badly needed sewage treatment facilities. But this legislative act will have no value unless funds are provided for the other parts of the system-the basic sewer lines. What purpose is served for a community to have a sewage treatment plant if it does not have the lines to provide for its effective utilization?

The availability of community facilities, especially water and sewer lines, is directly related to the construction of housing. How can we begin to meet our national housing goals if we don't provide the basic public facilities for the development of housing in newly urbanizing areas? With some communities around the country being forced to suspend housing construction because of a lack of sewer and water facilities, it seems unwise to cut back when the Nation is trying to meet critical housing needs. In addition, State health regulations, backed by court order, are taking an increasingly hard line in prohibiting housing construction in many urban areas unless there are adequate water and sewer systems. We believe the Congress and the administration should place water-sewer construction at the top of the priority list if the national housing goals which Congress has mandated are to be met over the next decade.

The need for greatly increased Federal water-sewer assistance is well documented in Oakland County, Mich.

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Oakland County is part of the Detroit metropolitan area, contiguous to the city of Detroit on the north. The county has grown rapidly since World War II. In 1950, it had a population of 396,000. By 1960, the county had increased to 690,000, and it now contains 990,000 people.

The Oakland County government provides water and sewer facilities for all the local governments in the county (25 cities, 16 villages, and 23 townships) at their request. Since the HUD water and sewer program began, the county has received approximately $2,118,000 in grants to assist us in the development of projects having a total cost of $282,000,000. We also have applied for five other grants for projects totaling $9 million which have not been funded by HUD.

In addition, we have 18 projects totaling $40 million for which we did not submit applications upon the advice of our HUD Regional Office. We were told that there simply were no funds for these projects and that it would not do us any good to submit applications.

We have some rural areas in Oakland County which could qualify for grants from the Farmers Home Administration, but we were also advised that there were no funds available for these projects, OMB having impounded $56 million.

We estimate that were H.R. 13853 promptly enacted by the Congress, at least one-half of the 18 projects ($20 million) referred to above fee which we did not submit applications to HUD, could be placed under construction within 60 days. Construction of the balance of these projects could begin within 6 months.

The facilities which we could begin construction on within the next 6 months would also have the effect of helping us reduce our county's unemployment rate, currently at 8.2 percent, compared to the national rate of 5.8 percent. These projects are not “make work.” Rather, they would provide sound employment opportunities and have a lasting beneficial impact on their communities.

Frankly, ladies and gentlemen of the committee, we do not know where we will get the financing to meet the needs of our county unless additional Federal assistance is forthcoming. Because of State health requirements and court orders, we are definitely under the gun.

One of our communities, the village of Lake Orion, has been cited for pollution and ordered through the courts to abate pollution of a nearby stream called Point Creek. With a sewerage project under construction now, without Federal assistance, but with $1 million in State aid, it is going to cost each homeowner $372.50 per year for the life of the bond issue. This borders on being confiscatory.

In another rural area, the village of Clawson, we are just completing construction of a sewerage system. In order to meet principal and interest payments, it has been necessary to levy a tax of 22 mills on each property owner. These two examples are not the exception but rather the rule. Notwithstanding the fiscal crisis on the local level, property taxpayers are simply refusing to pay any more.

Mr. Chairman, we strongly urge this committee to approve this legislation as quickly as possibie. We believe the Members of Congress will act decisively on this bill if they are given an opportunity.

We thank you for this opportunity to appear before you today, and we will be happy to answer any questions you may have.

(The table referred to by Mr. Alexander in his statement follows:)

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