The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
June 13, 1939. OUTLIKE OF A PEQPOSKD HOK-FRDERAL PUBLIC SOHKS PROGEAH XhfL ne,ad for, » cpntlfBdjig non-Ieaeral public works pp Large •?Q±\x:,e ii> 1920,'a* - faring the 1920*3 the public works programs by states and immieipalitiea constituted an important aleaent in the aggregate capital expenditures of the country* These capital expenditure*, i»hich wer® ';r.aintained in large volume during those y**rs, provided an offset to savings and consequently irere a rna^or factor in making poesible the sustained high level of national Income that cbaracteriaed the p M H M U In financing their n«w construction prograsuij which averaged about §a,003,000,000 a year fraa 1921 through 1930, local government* provided an offset to savings to the extent of nearly HjOOO,000,000 a year in that period* Municipal expenditures for construction declined sharply after 1931 * however, and despite the stimulation offered by Federal grante in :rec@nt years, non-Federal public works since 1934 have not been over half as large as they w r e in the late Verities. In fact the fiscal operations of municipalities, taken aa a whole, instead of providing an offset to the savings of the con^unity &r© still actually contributing to the aociasulatlon of such fluids* In view of the apparent limited opportunity for Capital outlays by private enterprise on a scale that will assure the absorption of the increased private savings that may be expected to accompany rislsg national incoae, it appears to be imperative fro® the standpoint of achieving sustained recovery that public inve$t*ser*i shall continue in large voiuae for perhaps many years to cose* Reliance must be placed •> t - upon local governs-ieita to share their part of such a program. Deterrents %pn nm-~$pd&rsl Public /works* - Although there i s a substantial volts&s of useful projects that corsmunities *ould construct provided substantial federal financial assistance were available, as i s evidenced 03* the applications in response to the ?#W«A» program, tbere are several reasons ytoy these projects b« abantloii@'i or postponed i f such assistance i s withdrawn. kn important reason for tbie conclusion it that & corisider«ble part of the construction programs of local £overn&dats in the 1^20*s came in response to pressing deficiencies* for example, n«w •Tfwaya and. educational f a c i l i t i e s , which accounted for orer |1,£OC,000,000 a year of public construction or 71 percent of the total in the late tmr,ti®&, were needed badly because of the rapid gro-vrth of vehicle Traffic and of enrollment2 • Although there Is s t i l l plenty of rocs; for aew construction and particularly for n0tierniMti3!> pro^raiss in th@se fields,' the n^ed is wben the growtli factors ciWi ab<sv@ -nere present. not so urgent a* The moat desirable 1 of public coi.stractlon at present appear to be hospitals, sanitation projects, ra01 national f a c i l i t i e s , M4 the lik» # which also nd^it be postponed by mwiicipalitias unless thex*e i s a strong incentive provided through Federal aid» - 3 Mother difficulty is that many municipalities are unable or unwilling to add to their large amount of indebtedness acquired in the Twenties, although local governments in the aggregate have actually reduced debt since about 1933* In addition, real estate assessments have been declining, thus tending to reduce the principal source of local revenues* The prospective heavier relief and social security requirements are elso deterrents to 1 tate and local governments undertaking large-scale public works programs under present conditions* Protective, decline, %n. non^fede^al public worfes in 19 4p* Expenditures under the present non-Federal ?**»A« program are expected to reach a peak this sisaaer at a substantially higher level than in any previous year and, allowing for seasonal factors, the decline from this level will be & gradual one until the sugmer of 1940* At that time, however, they will slump off rapidly and by the winter months expenditures will be of negligible proportions* So long as a possibility exists that a new federal public works program .^ay be inaugurated! local goverroent® will be extremely unlikely to undertake important -public works which are financed solely from their own funds* Ttm-& is no assurance that private investment will in- crease fast enough to counteract the depressing effects on construction activity of this prospective slump in public works* It appears essential, therefore, that imediate action be taken to provide the necessary legislation for a nms program in order to be certain that actual construction can be under way by next sxaamer. - 4 Budgetary aspect of new i^deral grants to municipalities A n®w program involving outright cash grants of a sizable percentage of the cost of non-Federal projects similar to the present pro&rsft is subject to an important objection from a budgetary standpoint . According to the official estl&ates the Federal deficit for the fiscal year 1940 idll amount to #3,300,000,000. The Senate already has voted about $400,000,000 for agricultural benefits, not included in these estimates, bringing the contemplated deficit to 13,700,000,000. A P*W#&. progrm to provide $1,000,000,000 of non-Federal construction on the basis of a 45 percent grant would add 1450,000,000 more, thus increasing the deficit to well over 14,000,000,000. This isould be the highest deficit in any year with the single exception of 1936, which included the payment of the veterans1 bonus, in view of this budgetary situation, it will be difficult, if not impossible, to obtain Congressional approval for a iV£.A« non-Federal public works program. I ven If Congress voted the program, a 44*000,000,000 deficit would appear of alarming proportions to a large part of the public* In an effort to obtain the siissulating effects of substantial non-Federal public vorkg expenditures and at the sa@e time to avoid the heavy charge on th© federal budget that is involved ur>dt- the present system of 45 percent cash grants, the following proposal is presented for consideration. It provides special inducen»ata to local governments to continue public construction projects by giving a taucb larger ~ 5 subsidy in the fora, of federal annual contributions to servicing the dtebt incurred by the municipality to finance a given project than that nfcicb would to® allowed in the form of an outright cash grant* 1* the annuaX oonti-jbutioi: metnoci. - The Federal eontribtitions to nunieipalities would be given in an annual smouut aqual to 50 percent of the annual dmbt mrvlm on the municipal borrowings isfoieih w®r« ineurred to fi»ane« th« eoat of the projects. Tbeae annual Federal pagnsente -muld be made botii mi loana made to the mnaicipaliiiee b^ the Fmblie lorks Authority of the Otoited States ua^eanment and on loans obtained elsewtwe, proidded that the rate of interest on the latter loan® does not exceed 3 percent per a»numu The »®w interest rate charged hj 1*e United States ^ttbXtl Work« Authority would also be 3 pereent* It ahould also he required that the Federal annual contribution should not exceed 3 1/2 percent of cost of the project. 2# tlm ^^tri^ht. cayh_ _grii^t# - In lieu of the sfoQ-v® annual , the United States Government nomld give outri#t cash grants equal to 25 percent of the construction cost of the new projects. Cfrffffff a^sAait the Changing o w r to an M M l contribution method, of Federal assi stance to mm tmatdpal public works would greatly reduce the current charge on the federal budget« /MisiMing that the average ultiemte maturity of ounicipal 'bonds involved la the prograai uoula be 26 years inhich is ©bout ayerage maturity of the borrowing under th® recent k\ W, A* programe) with debt send.ce in approxif/iatel^ equal annual , tee aannal Federal contributions of 50 percent of carcharges would anount to slightly ore? 2 3 A percent of Vm coat of the projects on a 3 percent interest basis. A $ltQQ0,OGQ#QOQ ?• 1# At program W O B M require, thereforet a current budget outlay of about |27f50Cf000 instead of $450,000,000 under the present system. - 6 It should also be mentioned that annual contributions of the proposed anouxit would be somewhat more attractive from the financial standpoint than the present system of 45 percent grant to a municipality which borrows the remaining 55 percent to finance the project. the alternative Federal grants might be limited in amount to 150,000,000 per annum which, if completely taken, would mean 1200,000,000 of public construction. One advantage of not eliminating the cash grant entirely is that the change to the new system would be less abrupt* Moreover, sor?e co&imuiitles might still be attracted even with the smaller grant in the event borrowing was not feasible for one reason or another. Justification of annual contribution method the sain reason for annual contributions is that this method spreads the cost over the life of the project. Xhe public works program consists chiefly of heavy construction projects which have a long life or, in other words, of those projects which constitute the more permanent additions to the public wealth of ca?anunitles throughout the country* Projects of this type are generally financed frota the proceeds of borrowing instead of from current revenues because it would place an unjustifiable burden upon present taxpayers to require the irtaaediate payment of the entire cost of improvements that will be returning benefits to the public over a long period of years in the future* Thus, by giving Federal aid in the form of annual contributions the Federal share of the cost, as well as that of the municipality, - 7 • is paid for at the time the benefits are received by the public* This is a true ^pay-as-you-go14 method for stating the cost of public projects that provide services to the Municipality year in aad year out. There s#ama reason to believe that only by introducing some such method of giving JPedaral assistance can we be assured of a continuing noo»?fedcj*al public works program* ±h# **. W, A* pro- grass oi the past have alumys been considered as seergeney measures and have been allowed to lapse frotH tSum to tirau This approach militates againat proper adsinistrative tining of eatisenditures so that the program can be used moat effectively in promoting general business recovery and stability. Annual contributions have long been the accepted method by which the Uorer&aent of Great Britain gives subsidies to local govern^tnts for t^« stij&uLatioa of d#«irable racial serrlces* :ihis principle was also laeorpor&ted in the U« S* Sousini: Authority prograst and, although a cash grant is optional to the local housing authorities, the annual contributions are so such mor© attractive the u » 3. Housing Authority has not had a single application for a grant to date* The chief obstacle to the proposed program is that it involves an Increase in borrowing by the States and municipalities* ~ 8 This creates a nua&er of legal and practical difficulties depending upon local circumstances. A few of the more important types are discussed briefly below. !• £oojs,titut±oftal debt liaita^QfoS. - A large number of local governments are subject to statutory debt limitations baaed upon assessed value of property, population, ate. This Is the earn* problem which has confronted the present program to a slightly smaller extent and the \ W. A. and K . F. C. have aided numerous cities in finding ways around such limitations. *'he isau&nce of revenue bonds which generally are not subject to statutory debt limitations, the use of special tax obligations, and the creation of special Uoverissental corporations and authorities are among the derriees designed tor this purpose. In view of the success of these methods and the experience that i© now availaMe which could be applied to tli© sinilsr problems ttiat would arise under the n%w program, it appears unlikely that conatltutional debt limitations -rould create an insurmountable difficulty. 2. Tax limitations, wbdeh operate as practical debt limits. Certain municipalities are not permitted to contract debt charges unless sufficient tax revenue is available to r.eet such charges. In socte cases of this kind; additional taxes would have to be provided even though the federal Government is making annual contributions so that the carrying charges for tfetf municipality, Itself, ar@ not increased as compared with the cash grant zaethodU A special problem would arise if the municipality had a statutory limitation on the tax rate. This is in the nature of a psychological difficulty because with the annual contribution of the Government there would be no increase in debt carrying charges, as compared with a cash grant of equal value. Fbr this reason, it should be &ueh easier to correct this technicality in the law to persdt the municipality to take advantage of the ^ovemment * s offer. Anoth«r possibility which has been suggested is that municipal bonds could be ®old to the aonranvsent en a low interest basis to correspond to the federal contributions &nd the Government could append a contract calling for the additional annual payments whe& the bonds are resold to the general public, -uch a bond would probably have a better market tinea the obligation of a smmieipality that does not carry ©uch a specific pledge of the Federal contributions. 3. apfl^ elections. - The larger debt authorisation that would be involved in this program would probably be more difficult to obtain in those ooaiamltles where elections are required. Ibis is, of course, an illogical view of the matter, and there is some evidence that voters in municipal ©lectiotis ere more conscious of the carrying charges rather than the "gross" debt figure. The only way to overcome the prejudice, however, appears to be public education to show the benefits of the proposed project and to point out how »uch the Federal Government is actually contributing to its cost. mf - there ®m clifflaxities that night confront particular public bodies In qu^li.^lnf for Federal assistance under the proposed program, they to not appear to be of such A serious character &e to prevent the attainment of a ci^ablo ROR-fed^raJ T'oblic works ?>roiTfiBB for the latt«r half of 1940* the P» W. 4, has a backlog of persding applica-tlons for projects totaling |1,75O,OC€JOCX)4 «na T.BIBJ of would s t i l l be ©llcible* Moreover # sufiny publicfcati&Mhnv# a <l»sir« to miteit applications for grants since tiie tilo<ig last *r;«p"&aatoer« Si fact t,b» «xperler-ct unciar V;r vailou.® Fecieral prograr?a ha» alwagra butti that eligible proiacta are ia «3^ee« of availablt funds. If legislation *?©re passed now there should be sufficient ttae to work out the neoossar:' aASninistrAtlve ami technical probie&a that nifht be encountered in eom^ection with individual situations* Over a longer period if Federal assistance took the form of aaoual contributions there can be l i t t l e dioultt that most. States and cxunieipaliti^jF would adjust their practices or laws so that neoesseiy and desirable projects cook! eo?itiriue to quality for the Federal aid.
@FedFRASER