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rim Equity in School Move In Financing: The Courts A Decade of Growth for Social Spending Budget Surpluses for State and Local Gov ernments: U n d e rcu ttin g Uncle Sam's Fiscal Stance? The Fed in Print IN THIS ISSUE . . . Equity in School Financing: The Courts Move In . . . Changing attitudes and financial crises of local governments have thrust the issue of equitable school financing into the arena of major social concerns, with the courts defining and implementing the objectives. A Decade of Growth for Social . . . Social spending at all levels ment has steadily increased, now for a hefty slice of the national Spending of govern accounting income. Budget Surpluses for State and Local Gov ernments: Undercutting Uncle Sam's Fiscal Stance? . . . Recently state and local governments have begun posting fatter and fatter sur pluses which are partially offsetting the ex pansive impact on the economy of Federal deficit spending. On our cover: The Capitol Building of the Commonwealth of Pennsylvania is located at State and Third streets in Harrisburg. Designed by Joseph M. Houston of Philadelphia, it was com pleted in 1906 and dedicated on October 4 by President Theodore Roosevelt. An E-shaped gran ite structure of Italian Renaissance design, the Capitol is 520 feet long and 254 feet wide. Its dome, towering to a height of 272 feet, is visible from almost every point in the city. (Photo courtesy of the Pennsylvania Department of Property and Supplies.) BUSINESS REVIEW is produced in the Department of Research. Ronald B. Williams is Art Director and Manager, Graphic Services. The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to Public Information, Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania 19101. FEDERAL RESERVE BANK OF PHILADELPHIA Equity in School Financing: The Courts Move In by Anita A. Summers Mankind has long sought equity. Every one— from King Solomon to President Nixon — has been for it. The question which leads to conflicting views is, what does it mean? Whether income distribution, garbage col lection services or education is being con sidered, these questions need to be an swered: equity for whom? equity measured by what? equity determined by whom? School financing has been thrust into the spotlight by changes in American values and crises in municipal financing. To date, most of the debate has been in the courts. While the final judicial verdicts are not in yet, changes in defining and implementing equity in education are in the offing. On March 21, 1973, the United States Supreme Court, in a razor-thin 5 to 4 deci sion, upheld the constitutionality of the present methods of school financing in Texas. Writing for the majority, justice Lewis F. Powell, jr. declared that "the considera tion and initiation of fundamental reforms with respect to state taxation and education are matters reserved for the legislative processes of the various states. . . ." The article presented here, written before the Court ruling, highlights the underlying issues leading up to this decision. Specifi cally, it deals with recent efforts to develop more equitable methods of school financing and the role that courts are playing in de fining and implementing equity in education. EDUCATIONAL EQUITY COMES OF AGE Social Self-Consciousness. Although a major issue in the last century, equity in the financing of education has again become a 3 MARCH 1973 BUSINESS REVIEW receipts, coming mainly from property taxes, has been sluggish—as income of city resi dents has climbed, property tax revenue has not risen proportionately. Adding to the revenue problem has been the erosion of city tax bases, as families and firms have headed for the suburbs.3 Accompanying these developments, taxpayers have viewed educators' requests for more funds with in creasing wariness. Improvements in skills have been minor, student turbulence has continued for years, and dropout rates have remained high. Yet, educational expendi tures have soared. For nearly three decades elementary and secondary school expendi tures have jumped significantly higher than the 7 percent increase in expenditures on all output in the United States (Gross National Product). Per pupil expenditures have more than doubled in the last 10 years. The educators' views that funds are in adequate and local taxpayers' wariness and reluctance to provide more funds mean that, for large urban school districts, the financial crisis is particularly acute. Those most con cerned over this general financial inade quacy are the ones who feel most disadvantaged in the general educational process. Hence, there has been a rash of lawsuits across the country brought by par ents and children who feel that they are being shortchanged in the parceling of edu cational funds. live topic among lawyers, educators, poli ticians, and social scientists. And this is not at all surprising. Two major developments— one social, one economic— have converged, inexorably, on education. During the past 25 years, Americans have moved through a painful exploration of social concerns, leading to a quest for more precise defini tions of rights. Racial discrimination, rights of the poor, and women's liberation have been drawn through the maze of courts, legislatures, activist groups, and academia. Economist Kenneth Boulding has called this trend a movement from a period of per sonal self-consciousness (the era of Freud) to a period of social self-consciousness. These changing attitudes have also pushed a child's right to be educated to the forefront of items to receive a definition of equity. Crisis in Municipal Finances. The condi tion of local finances— in particular, urban finances— underscores the urgency of de fining equity in education as well. In many large cities education revenues are inade quate to meet school needs. (Indeed, total local revenues are viewed as inadequate to meet municipal needs in many major cities.)1 Center cities have certainly had in tense competition for their tax dollar. Their high-cost population and old physical plant have resulted in increasing demand for noneducational services.2 But growth in tax The Ultimate Objective. Because of changing attitudes and financial crises of local governments, the question of educa tional equity begs for definition, with the courts playing a major role in the process. Obviously, the child is the prime objective 1While most major cities have faced financial dif ficulties during the past years, state and local govern ments as a whole have not. For a discussion of the aggregated budget posture of state and local govern ments, see Donald L. Raiff and Richard M. Young, "Budget Surpluses for State and Local Governments: Undercutting Uncle Sam's Fiscal Stance?" in this issue. 2 Center cities spend about a third of their revenue on education, suburban areas about half. In the Philadelphia area, in 1966-67, local taxes were 6.2 percent of personal income in Philadelphia, 4 per cent in the suburbs— but, $51 per capita went to education in Philadelphia and $85 per capita in the suburbs. 3 Center city family incomes are more than $2,000 less than suburban family incomes. Suburban retail sales in the 37 largest SMSAs increased 106 percent between 1958 and 1967; center city sales increased by only 13 percent. 4 FEDERAL RESERVE BANK OF PHILADELPHIA They worked out an approach known as "fiscal neutrality," which side-stepped the issue of equity in output (educational qual ity) by focusing on the issue of equity in dollar availability.4 They argued that edu cational funding should be unbiased in the sense that equal tax effort (equal millage on the value of property) should raise equal dollars per child. While almost all states have some form of "equalization" standards, unequal amounts per pupil still are raised from equal millage because property values vary so widely (Hawaii being the exception). The landmark decision of Serrano v. Priest in California was the first in a series of cases successfully argued using this principle of fiscal neutrality. Schoolchildren and their taxpaying parents from a number of Los An geles County school districts sued a number of county and state officials on the grounds that the method of financing education in the state of California violated the equal protection clauses of the state and U. S. con stitutions. They contended that the statemandated tax structure resulted in their paying higher tax rates to receive the same or less revenue for education as those in other school districts in the state. The out come, they argued, was lower educational quality despite high tax efforts for many school districts. On August 30, 1971, the California Supreme Court ruled that: of the educational process. How is equity best defined for the child? The courts, through constitutional interpretation, may be better equipped to define the objective in a less demanding way by requiring equity for the taxpayer. The legislatures, by re sponding to their constituencies, may be better equipped to respond to the more demanding statement of the objective— that is, equity for the child. In either case, providing all children in a specific jurisdic tion with an equal learning opportunity is the ultimate objective. EQUITY— FOR THE TAXPAYER OR THE CHILD? There are two sides to an education budget— revenues and expenditures. De bates about equity in school financing fre quently move around loosely between the two sides. If equity for the child (or the school or the school district) is the goal, then the expenditure side is emphasized, and the question is whether or not public education funds are being spent "fairly." Court cases with this leaning emphasize the inferior education received by children of the poor or children in minority groups. If equity for the taxpayer is the objective, then revenue is stressed, and the question is whether or not public education funds are being raised "fairly." Court cases with this leaning emphasize the relatively low amount of funds raised in poorer areas with equal tax effort. Clearly, the child and the tax payer are not entirely different entities—the taxpayer is often the parent of the pupil. But, when measuring the degree of equity, it is useful to emphasize the different hats they are wearing. And taxpayer equity is easier to measure than pupil equity. W e have determ ined that this funding schem e invidiously discrim inates against the poor because it makes the quality of a child's education a function of the w ealth of his par ents and neighbors. Recognizing as w e must that the right to an education in our public schools is a fundam ental interest w hich can not be conditioned on w ealth, w e can dis cern no com pelling state purpose neces sitating the present method of financing. Equity for the Taxpayer in the Courts. Three lawyers specializing in the area of school finance reform were quick to recog nize the relative manageability of a taxpayer equity standard in the eyes of the courts. *]. E. Coons, W. H. Clune, and S. D. Sugarman, "Educational Opportunity: A Workable Test for State Financial Structures," California Law Review 57 (1969): 305. 5 MARCH 1973 BUSINESS REVIEW available to be spent on education with the same tax effort on the part of the school district (see Box for details of several pro posals aimed at meeting the fiscal neu trality standard). W e have concluded, therefore, that such a system cannot withstand constitutional chal lenge and must fall before the equal pro tection clause. The post-Serrano period has seen a steady flow of successfully and similarly argued cases in a number of states. In Minnesota the "fiscal neutrality" argument was used with success. The United States District Court found that the state had organized a tax system which resulted in less education revenue for some school districts. The state legislature revised its school aid formula, and the plaintiffs withdrew their case. Simi lar decisions were reached in cases in New Jersey, Arizona, Kansas, and Michigan in 1972. The case receiving the greatest attention now is one originating in Texas and argued before the United States Supreme Court on October 12, 1972. A group of Americans of Mexican descent (children and their taxpaying parents) originally sued the Texas State Board of Education, San Antonio School Districts and others. The United States District Court, in December 1971, declared the Texas educational financing system unconstitutional and ordered it cor rected by the 1973-74 school year. An appeal was brought to the Supreme Court and a ruling is anticipated this spring. Press coverage to the contrary, local prop erty taxes have not been declared uncon stitutional, and the level of educational spending in any school district has not been mandated. What has been strongly affirmed (with one exception noted below) is the concept of fiscal neutrality. The definition of equity in education mandated by the courts is taxpayer-oriented. It measures edu cation in terms of dollars available to spend and defines equity in terms of equal dollars per child from equal tax rates. It skips over the question of whether a difference in edu cational expenditures results in a difference in educational quality. It says, simply, that each child should have an equal amount Equity for the Child. Impressive as these equalizing recommendations and decisions may be, the lack of concentration on equity for the child is deplored by many. A strik ing feature of the 50-odd recent court cases involving school finance reform is that no case stands which has ruled in favor of re quiring equal educational quality for the children in different school districts in a state.5 In 1954, the U. S. Supreme Court in the famous Brown case, in which racial segre gation was the central issue, ruled: Today, education is perhaps the most im portant function of state and local govern ments . . . Such an opportunity, w here the state has undertaken to provide it, is a right w hich must be made available to all on equal terms. Not until February 1968, however, was this basic philosophy related to school fi nance reform. Poor children in Detroit complained that they were receiving a qual ity of education inferior to that in the more affluent suburbs, and demanded correction through reforms in educational finance. In June 1968, a few months later, a similar com plaint landed in the courts in Illinois. Stu dents and parents argued that a school finance system that did not educationally compensate the disadvantaged— a system that did not allocate money according to "educational needs"— was unconstitutional. nJudge J. Skelley Wright did rule in Hobson v. Hansen in 1971, in Washington, D. C., that per pupil expenditures on teachers' salaries and benefits in the D. C. schools should not deviate more than 5 per cent from the mean, that this covers “ only inputs which do have a direct bearing on the quality of a child's education," and this is a “ judicially manage able standard." 6 FEDERAL RESERVE BANK OF PHILADELPHIA MEETING THE FISCAL NEUTRALITY STANDARD One group of proposed schemes involves moving toward more centralized fi nancing of education. The state would raise all funds for education and dispense them uniformly throughout its districts. This concept meets the only requirement of Serrano, the requirement of fiscal neutrality (different school districts receive money in a way which is divorced from wealth). Moreover, it permits some leeway in dispensing funds. For example, equal expenditures per pupil with corrections for cost differentials (teachers' salaries, books) over the state would be consistent with the concept of fiscal neutrality, as would equal per pupil expenditures with correc tions for cost differentials related to student needs. Another proposal known as "power equalizing" has evolved. This scheme is con sistent with the present decentralized form of education and fuses egalitarian and libertarian views. One version includes (1) a flat grant per child to be provided by the state to insure a basic adequate amount of spending, (2) a categorical grant to respond to specific needs (for example, transportation, municipal overburden, un derachieving students), and (3) a local tax source. Local school districts would raise money as they see fit (with the taxes allowed to them in their respective state con stitutions), with one proviso. Districts which raise less than the average amount raised in the state from any given tax rate would receive the difference from the state. The state would obtain these funds from the districts which raise more than the average amount. Thus, for each 1 percent a district taxes itself, it will raise an amount of money per pupil to be spent on education equal to that of every other district in the state. This scheme meets the fiscal neutrality mandate and, indeed, exceeds it (consideration of the needs of different types of students and school districts, as re flected in the flat and categorical grants, is not part of the ruling).* Thus, the "power equalizing" plan appears to satisfy the courts, keeps many as pects of local taxation intact, leaves school administration to local districts, and allows individual districts to spend more on education if they so choose.** * A simple power-equalizing scheme has been applied to school districts in Pennsylvania to illus trate what the impact might be (see Appendix). The hypothetical plan assumes that present state and Federal aid would be the flat grant and categorical aid components. ** All the ramifications of such a plan are not known, of course. It is possible, for example, that rich districts, finding their greater-than-average capacity to produce tax revenues for education used for. others, would opt for more of other public services, and send their children to private schools— thereby reducing the tax revenue to be redistributed. 7 MARCH 1973 BUSINESS REVIEW The next year, students and taxpayers in Virginia sued their state's public school and finance officials, charging the state with not fulfilling its obligations, because per pupil expenditures varied widely over the school districts in the state. None of these cases brought about changes in educational fi nancing procedures. The courts referred to the absence of a "judicially manageable standard " and the confusing guidance of an educational needs criterion. Following these rulings, many other cases were dismissed and many were voluntarily withdrawn. Only when those who complained of in equity moved from the issue of equal edu cational quality to the issue of taxpayer equity did the courts begin to render affirma tive decisions. The difficulties the courts faced in developing manageable criteria for determining what constitutes equal educa tional quality are the same that educators face when evaluating various educational programs: What quantitative measures should be employed in determining whether programs have achieved their objectives? WANTED: STANDARDS FOR EQUITY IN EDUCATIONAL QUALITY Equal per pupil expenditure makes things equal, but in many cases not fair. The edu- 8 FEDERAL RESERVE BANK OF PHILADELPHIA Until such issues are better specified, schemes for school finance reform which detail allotments might be better imple mented through flexible arrangements which allow for additions and retractions for spe cific educational requirements. In the ab sence of detailed attention to these needs, large cities may emerge the losers. For example, Philadelphia, under one simple formula, would be less well off (see Appen dix). A more sensitive indicator of needs, however, would produce a result more helpful to center cities. In short, if educa tional policymakers are to achieve the ultimate objective of an equal learning op portunity for all children, they must develop manageable standards for assessing educa tional quality. cation of a physically handicapped child must cost more than that of a normal child. His educational demands are greater if the same achievements are desired. Currently, most financing schemes allot extra funds for such a child. And the costs and results are readily ascertainable. The more subtle ques tion arises with the less visible handicaps related to poverty or race. Should heavier allotments be made to overcome these socioeconomic differences? To answer yes, one needs to have much more in the argument than "help the dis advantaged." If more is spent for such a child, is he, in fact, helped in his school achievements? The much-publicized Cole man Report concluded that "when schools with economically and racially similar stu dents were compared, differences in school policies and resources were rarely associated with pedagogically significant or statistically reliable differences in verbal achievement."6 Does that mean that money doesn't matter— that spending more on the disadvantaged won't help, because socioeconomic and genetic characteristics matter most? Perhaps. But the issue is certainly not a settled one.7 WHAT NEXT? Now, it is education— not housing, wel fare or job training— whose equity charac teristics are under fire. The courts, in particular, have been called upon to define the standards. What has clearly emerged is a general acceptance in many states of a minimal standard of equity to be enforced by the courts. That is, within the state, equal tax rates must generate equal dollars for educa tion. If the U. S. Supreme Court upholds this position, plans for implementing it in states where cases have already been decided will move along rapidly. In other states, litigation will surely develop. If the Court does not uphold the position, the issue will have been tossed back to the states for examination within the frameworks of their constitutions. The results will be slower— and, of course, less uniform. Beyond this minimal standard, develop ments are more likely to be seen in state legislatures than in the courts— and prefer ably so. The legislature, in the development of state support formulas, already has con siderable experience in defining equity in “ James S. Coleman, Ernest Q. Campbell, Carol J. Holson, James McPartland, Alexander M. Mood, Frederic D. Weinfeld, and Robert L. York, Equality of Educational Opportunity, 2 vols. (Washington: Gov ernment Printing Office, 1966). 7 The Department of Research of the Federal Reserve Bank of Philadelphia, as part of its continuing interest in the economic problems of Philadelphia's public sector, is conducting a study of resource inputs and achievement outputs of Philadelphia public school students. The effects of various school inputs (exam ples are teacher quality and equipment), socioeco nomic inputs (examples are family income and race), and school climate inputs (examples are the number of disruptive incidents and the proportion of low achievers) are being analyzed in relation to changes in pupil achievement over a period of years. Inputs important to low achievers will be sorted out from inputs important to high achievers. Similarly, sort ing will be done by race and by income levels. 9 BUSINESS REVIEW MARCH 1973 terms of meeting the educational needs of different categories of students. The search for more accurate answers to the question of the role of educational resources in edu cating the disadvantaged is proceeding, but still has some distance to go before yielding a useful judicial yardstick.8 The one certainty is that change in the area of school financing is inevitable. Even if radi cally different schemes are not implemented, the objective of educational equity will get a new look. The role of the property tax in school financing will probably diminish, as new taxes are examined. If nothing else, the property tax system is likely to be over hauled. Improved equalization procedures, and new computer techniques for keeping the tax revenue moving with property values will be implemented more rapidly as a con sequence of the energetic search for educa 10 tional equity. Moreover, this search, along with the fiscal crises of many urban schools, creates a compelling pressure to seek out the effective use of limited educational in puts. When funds are scarce, the question of who should get how much sharpens and the answer becomes visible in its impact. During this period of reexamination and change, the schools are expected to continue to operate. For the urban schools the task of operating is staggering. Not only must they await further judicial opinions, but they must also deal with taxpayers that are in cre a sin g ly re lu cta n t to give m ore to education. 8Thus, in one suit in Illinois, the court said, . . there are no 'discoverable and manageable standards' by which a court can determine when the constitu tion is satisfied and when it is violated." FEDERAL RESERVE BANK OF PHILADELPHIA APPENDIX WHAT ONE EQUALIZING METHOD W O U LD D O IN PENNSYLVANIA In the table below a few school districts were selected, somewhat arbitrarily, to illustrate what the current (1971-72) range of per pupil expenditures is, what the current local tax effort is for education, and what changes in school district expen ditures could occur if a simple, hypothetical, and equalizing method were adopted: (1) (2) (3) (4) (5) (6) (7) (8)* (9)* (2)-(3)-(4) (6)x$26.58 (8)+(3)+(4) Local Local Tax Local Tax Revenue Effort Revenue Per For Per Mill Pupil Education Per Pupil Local Tax Total Tax Revenue Revenue Per Per Pupil Pupil Using Using Equal Equal izing izing Formula Formula Central Fulton Clearfield Area Lebanon Stroudsburg Area N esham iny Yo rk Radnor Low er M erion Philadelphia Average of 139 Reporting Districts State Aid Per Pupil Federal Aid Per Pupil ($) Administrative Unit Total Revenue Per Pupil 623 766 859 901 985 1131 1275 1329 1347 ($) 417 500 362 252 432 508 91 110 531 ($) 18 22 26 17 6 7 0 1 15 ($) 188 244 471 632 547 616 1184 1218 801 899 372 9.4 712 (M ills) 50.9 24.0 28.5 22.7 33.1 31.4 32.3 19.7 22.2 ($) 3.69 10.17 16.53 27.84 16.52 19.62 36.66 61.83 36.08 27.0 26.58 ($) 1353 638 758 604 880 835 859 524 591 ($) 1788 1160 1146 872 1318 1350 950 635 1136 * Calculations are available, on request, for the remaining 130 reporting school districts. Source of data, Columns (1)-(6): Economic Aspects of Public Education in Pennsylvania, 1971-72, Graduate School of Education, University of Pennsylvania. (1) These are a selected group of school districts from the 139 reporting units, il lustrating a wide range of expenditures. (2) Total revenue per pupil is equal to the amounts spent on operating expendi tures, capital equipment, and transportation. Excluded are bond proceeds. Pupils are weighted by grade: K = 0.5, 1-6 = 1.0, 7-12 = 1.1 and only those on the active rolls are included. 11 BUSINESS REVIEW MARCH 1973 (3) State aid includes foundation support, designed to provide minimum support and to equalize somewhat, and specific allocations for school construction, health services, etc. (4) Federal aid, largely Title I funds. (5) Local revenue per pupil equal total revenue less state and Federal aid. (6) Local tax effort is measured by the ratio of all tax revenues used for education to the total market value of real property, expressed in dollars per thousand (mills). No correction has been made for unequalized assessments. (7) Local tax revenue for education is calculated on a per pupil per mill basis. (8) The mean raised per mill per pupil for all communities, $26.58, is multiplied by the current, local tax effort to obtain the hypothetical local revenue per pupil. (9) The amount raised locally under the hypothetical plan is added to Federal and local aid to obtain the hypothetical total revenue per pupil. What can be seen from the table? Total revenues per pupil (column 2), with the present form of equalizing, vary widely. Philadelphia has the highest of the report ing districts and Central Fulton, one of the lowest, has less than half the per pupil expenditures. Variations in needs (transportation, costs, socioeconomic) not incor porated in present equalization methods account for some of this spread. Varia tions in effort and wealth account for the rest. Locally raised revenues (column 5) vary even more widely. In the small sample in the table, Lower Merion is six times Central Fulton. Two factors, effort and wealth (as measured by property values) are involved in this result. Local tax effort (column 6) varies widely. The community poorest in property value of this sample shows the greatest effort (Central Fulton), and the community richest in property value shows the least effort (Lower Merion). Communities show a large spread in taxed property value. Because property values vary so widely, the amounts of revenue raised per mill per pupil (column 7)— that is, what the same tax effort produces per pupil—varies widely. One mill raises $3.69 per pupil in Central Fulton, and $61.83 in Lower Merion. If the revenue from a mill were the same (equal to the present average) for all school districts, low per pupil spenders would receive more, and high per pupil spend ers would receive less (column 8). This hypothetical plan would leave each com munity expending its present tax effort. Essentially, a redistribution of school revenue would occur from high property value districts to low property value districts. This can be seen by comparing columns 8 and 5. When the present equalizing state and Federal aid are added on to the equalized local tax revenue per mill, the total tax revenue for schools is larger for school districts with higher tax effort (column 9). Thus, Central Fulton would, in this hypo thetical plan, have the largest amount (and the largest increase in amount) per pupil available to spend. This can be seen by comparing columns 9 and 2. It would bene fit greatly from the fact that, without the plan it was able to raise only $3.69 per pupil per mill— much less than the average for the reporting districts in the state of $26.58. And, in addition, it would be rewarded for its very large tax effort— 50.9 mills, com 12 FEDERAL RESERVE BANK OF PHILADELPHIA pared with the 27.0 average for the state. Lower Merion, on the other hand, would have much less available to it. It would lose on two accounts—from the fact that it could raise $61.83 per pupil per mill (much higher than the $26.58 state average), and from the relatively low tax effort of 19.7 mills (much lower than the 27.0 state average). Philadelphia would emerge somewhat worse off— it is able to raise some what more than the average per pupil per mill, but its tax effort is less than the average. Clearly, many factors have not been incorporated in this hypothetical plan. Many would advocate much more weight being given to those with socioeconomic disad vantages than is now incorporated in the equalizing aid. And many would want to allow for the municipal overburden of cities. Both of these would result in a very different revenue availability for Philadelphia. 13 MARCH 1973 BUSINESS REVIEW A Decade of Growth For Social Spending by robert ritchie 14 FEDERAL RESERVE BANK OF PHILADELPHIA i CHART 1 DURING THE PAST 10 YEARS PUBLIC SPENDING UPPED THE SHARE OF NATIONAL INCOME FUNNELED THROUGH FEDERAL, STATE, AND LOCAL BUDGETS Percent of National Income 50 -------------------------------------------------------------------------------------------------------TOTAL GOVERNMENT EXPENDITURES 30 ----------------------------------------------------------- FEDERAL GOVERNMENT EXPENDITURES 20 ----------------------------------------------- STATE AND LOCAL GOVERNMENT EXPENDITURES 1962 Source: . 1963 1964 1965 1966 1967 1968 1969 1970 1971 U. S. Department of Commerce, Survey of Current Business I . 3 '• f : f ' I | . •• ..■ 5 15 ■■A * J ... . ' . BUSINESS REVIEW MARCH 1973 CHART 2 MOREOVER, UNCLE SAM BEGAN SPENDING MORE ON DOMESTIC SOCIAL PROGRAMS* THAN ON NATIONAL DEFENSE * Millions of Dollars FEDERAL GOVERNMENT EXPENDITURES 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 * Domestic social programs include expenditures on education, health, labor, welfare, veterans benefits and services, commerce, transportation, housing, and natural resources. Other expen ditures include spending on space research and technology, general government, international affairs and finance, and agriculture. Federal expenditures are larger than attributed in Chart 1 because of Federal grants-in-aid. 16 FEDERAL RESERVE BANK OF PHILADELPHIA CHART 3 AND, STATE AND LOCAL GOVERNMENTS, WHICH USUALLY DEVOTE MOST OF THEIR BUDGETS TO SOCIAL PROGRAMS, INCREASED TH ESE EXPENDITURES CONSIDERABLY. Millions of Dollars STATE AND LOCAL GOVERNMENT EXPENDITURES 140 120 100 80 60 40 OTHER EXPENDITURES 20 0 1962 1963 1964 1965 1966 17 1967 1968 1969 1970 1971 BUSINESS REVIEW MARCH 1973 AS A RESULT, GOVERNMENTS’ SOCIAL SPENDING ACCOUNTS FOR MORE THAN A QUARTER OF THE NATIONAL INCOME. Percent of National Income 15 ---------------------------------------------------------------------| | | | t t »»»i n l t STATE AND LOCAL SOCIAL EXPENDITURES 5' ;--------------------------------------------------------------------------------------------------------------- l i f I____ I ____I ___ l_____I ____I ___ I ___ I____ I____ I__ l _ _ _ _ _ 0 1962 1 fe ?| 1963 1964 ■ s' : : : 1965 , * I Ul 1966 ; 1967 r ‘ 18 ■ ■ 1968 * i 1969 • ... £ : ■ ■ 1970 ■ 1971 ■ !.a ;J FEDERAL RESERVE BANK OF PHILADELPHIA Budget Surpluses for State and Local Governments: Undercutting Uncle Sam's Fiscal Stance? by Donald L Raiff and Richard M. Young group, have switched from "balanced" budg ets to ones with unprecedented surpluses.1 And another surplus is in the cards for '73. Because of this state and local surplus for '73, the Federal deficit projection substan tially overstates the stimulative impact of the public sector on the economy. Thus, rather than catapulting the economy into an over heated boom, the total fiscal stance of the public sector may be a tempering influence on economic expansion in 1973 and 1974. Each year since 1969 the Federal Govern ment has run budgetary deficits larger than any since the end of World War II. Although deficits and surpluses are not the only chan nels through which governments' budgets affect the economy, they are the biggest attention-getters (see Box). The reason for this is that a big deficit typically signifies a boost to economic expansion, sometimes too hefty a boost. The concern expressed in some quarters is that Uncle Sam's deficit for 1973 will push an already expanding economy into a runaway boom accompanied by a rising rate of inflation. While national attention has centered on the Federal red ink, relatively little notice has been taken of the new fiscal position of state and local budgets. In the last few years state and local governments, as a 1The surplus is on a National Income Account basis as published by the U. S. Department of Com merce in its Survey of Current Business. The aggre gation is over all state and local governments, both their regular budgets and the social insurance funds which they control (see footnote 2). 19 MARCH 1973 BUSINESS REVIEW MORE TO A BUDGET THAN SURPLUSES AND DEFICITS Surpluses and deficits are probably the most widely discussed aspect of govern ment budgets when it comes to assessing the economic outlook for the nation. The reason for this is that a deficit typically has an expansionary effect on the economy, and a surplus a contractionary one. But there is more to understanding a budget's effect on the national economy than being aware of its surplus or deficit position. Three sometimes elusive aspects— a budget's level, its composition, and its financ ing— also have important effects on output, employment, and inflation. Budget Level. Aside from a surplus or deficit, the importance of the level of the budget is a result of the balanced-budget multiplier— a concept familiar to every stu dent of introductory economics. The Federal Government stimulates the economy when it moves from a given surplus or deficit to a budget having higher expenditures and taxes but the same surplus or deficit. This effect is generated because Washing ton spends all additional revenues while John Q. Taxpayer would have saved part of his incremental disposable income had there been no tax increase.* Rapid in creases in taxing and spending by state and local governments since 1945 presum ably added to national income by an amount equaling the balanced-budget multiplier times the size of any equal increase in taxes and expenditures. In lieu of this effect, Uncle Sam would have found it necessary to reshape his fiscal posture to achieve the employment and growth levels of postwar years. Budget Composition. Revamped taxes and expenditures can also greatly affect a budget's impact on the economy. One expenditure may generate a feedback through the capital goods market, while another may not. For example, a billion dollar in crease in spending on tanks will not affect GNP the same as a billion spent on city parks. One tax payment may be deductible in computing a second tax, so equal re ductions in payments of the two taxes have much different impacts on the income left in the hands of the taxpayer. For example, a reduction in the city wage tax will not affect employment in the same way as an equal reduction in the Federal income tax. Budget Financing. If a government budget is not balanced, important feedbacks could result from using surplus funds or raising funds to cover the deficit. For exam ple, to cover a deficit, government must compete with other potential borrowers for funds, thus forcing up interest rates on these competing securities. The higher in terest rates will feed back through interest-sensitive demands in the economy. A secondary response would even involve monetary policy if it were aimed at con trolling these interest rates. In short, a budget is an intricate affair, and its effects, like its level and make-up, are not so easy to pigeonhole. * This is a simplistic view of the stimulative impact of such a move. It ignores both the possibility of a desire on the part of some governmental units to build up surpluses and the possibility that con sumers may value certain government expenditures as income. 20 FEDERAL RESERVE BANK OF PHILADELPHIA usual, with outgo nearly matching income. Then, almost overnight, state houses and city halls found themselves with mounting surpluses. Two important trends set in si multaneously during the mid-1960s to help swell state and local coffers— a pickup in the growth of revenues and a moderation SUDDEN SURPLUSES FOR STATE AND LOCAL GOVERNMENTS From 1950 to position for state about a quarter (see Chart 1).2 1969 the average budget and local governments was of a billion dollar deficit It was largely business as 2This position was the result of offsetting surpluses in social insurance funds and deficits in general revenue funds. Since 1950, social insurance funds have maintained growing surpluses while genera! revenue funds have run deficits, leaving the sector in a net position near a balanced budget. The recent sector surplus is a result of surpluses in both social insurance funds and general funds. Any movement back to a balanced budget for the total sector could involve both social insurance funds and general reve nue funds. A likely approach to balancing the budget would be the return of general revenue funds to a deficit position with surpluses maintained in social insurance funds. in the rate of growth of expenditures (see Chart 2). Several developments have accounted for the increased rate of growth of state and local revenues during the last five years. New sources of revenue have been tapped. Rates on existing taxes have jumped con siderably, particularly those on sales and in come. More funds have been squeezed from nontaxable sources such as increased fees at public hospitals and hiked tuitions at public 21 MARCH 1973 BUSINESS REVIEW As a result of this budgetary switch, state and local coffers posted a surplus of $3 bil lion in 70, nearly $5 billion in 71, and over $12 billion in 72. While easing the strain on many budget officials at the state and local levels, these surpluses can pose prob-, lems for those trying to gauge the impact of public spending and taxing on the econ omy. Surpluses can and do provoke miscal culations in Federal budget projections. Moreover, they blunt the stimulative impact of large Federal deficits on the economy. CHART 2 WHILE BOTH REVENUES AND EXPENDI TURES HAVE GROWN RAPIDLY AT THE STATE AND LOCAL LEVEL, REVENUE GROWTH RATES SINCE '69 HAVE RE MAINED ABOVE EXPENDITURE GROWTH RATES Percent Change In: — 0 STATE AND LOCAL REVENUES STATE AND LOCAL EXPENDITURES CLOUDING THE FISCAL PICTURE State and local budgets interact with those at the Federal level in many ways. The most obvious are the direct transfers from the Federal Government which turn up as ex penditures for it and revenues for states and localities. Not so obvious but more relevant for evaluating the impact of the public sector on the economy is the effect of state and local tax and expenditure decisions on Federal tax revenues. It's theoretically possible for the Federal Government to take into account the budget position at the state and local level when designing its own fiscal stance. To do this requires forecasting the revenues and ex penditures for the state and local sector. Since historically the state and local level has come up with a "balanced" budget, one forecasting method might be to project expenditures then assume taxes would be adjusted so that revenues would match them. If this method were used and state and local tax collections generated surpluses rather than balanced budgets, Federal tax collections would be lower than expected. Thus, projections of the Federal budget posture would miss the mark. An immediate reduction in Federal tax collections would result from increases in state and local taxes because many of these tax payments are deductible for purposes of calculating Federal taxes. If the unexpected state and local tax revenues were offset by l I I I I I I l I I I I I I I l I I 1.1 l i-J 1950 Source: ’55 ’60 ’65 ’70 U. S. Department of Commerce, Survey of Current Business educational facilities. General revenue shar ing, too, has spurred the recent growth of revenues from the Federal Government (see Chart 3). The slowdown in the growth rate of expenditures can be traced largely to a slow down in construction activity. School con struction, for example, has declined every year since '68. This decline can be traced to a number of factors— changing demo graphic patterns and the corresponding re duced demand for expanded facilities, voter rejection of school bond issues, and a period of relatively high interest rates which de terred all forms of building activity by governments. 22 FEDERAL RESERVE BANK OF PHILADELPHIA CHART 3 FEDERAL GRANTS-IN-AID TO STATE AND LOCAL GOVERNMENTS HAVE DOUBLED SINCE 1968 Billions of Dollars 50 FEDERAL AID TO STATE AND LOCAL GOVERNMENTS 45 40 35 30 25 20 15 10 5 0 (FY) 1960 ’61 ’62 ’63 ’64 ’65 ’66 ’67 ’68 ’69 ’70 ’71 ’72* '73* * Estimated Source: Office of Management and Budget an equal drop in Federal tax revenues (with expenditures holding the line), then the story would end here. But in general the offset is not complete, leaving total government tax receipts initially higher. Thus, there is some contractionary effect on the economy. Incomes would be reduced from what they otherwise would have been, 23 MARCH 1973 BUSINESS REVIEW split between the Federal and the total gov ernment position that reached some $12.7 billion in 1972. That means analysts who re lied on the Federal deficit in '72 as an indi cator of fiscal stimulus to the economy substantially overestimated the expansive impact of the public sector. The total gov ernment deficit-—the one that counts in terms of heating up the economy—was $12.7 billion less than the Federal deficit because of surpluses at the state and local level. and tax revenues would begin to slip. Since the Federal Government relies more heavily on income taxes, its revenue loss would be proportionately greater. Moreover, this sequence— kicked off by underestimated state and local revenues— may also lead actual Federal expenditures to exceed those projected in the budget. As the economy reacts to contractionary pres sure from a state and local surplus, for example, more people become eligible for unemployment benefits and other income maintenance programs. An unexpected surplus at the state and local level complicates the problem of pro jecting the Federal budgetary position. Also, because of errors introduced into the pro jection by the interaction of two budget sectors, it is much more difficult to assess the overall fiscal stance of the public sector. MORE SURPLUSES? While hindsight is 20/20, projecting the future impact of the total government sector on the national economy is fraught with uncertainties (see Appendix). The first prob lem is pinning down the behavior of states and localities. It may be true that the cur rent surpluses reflect a change in the tra ditional behavior of this sector and that they can be expected to continue at the cur rent levels. However, the surpluses may be the result of a failure to anticipate correctly the course of revenues or expendi tures. In this case, surplus-laden govern ments might attempt to return to a balanced budget position. The likelihood of this hap pening seems higher than continuation of the growth of surpluses. For example, a recent survey of governors and state legis lative leaders found almost half the states weighing the possibility of tax reductions.3 But changing tax legislation and expendi ture plans takes time. Hence, it's a good bet that state and local surpluses are going to be with us in '73, even if their elimination is sought. And these large surpluses would mean that the Federal deficit again overstates the public sector's boost to economic expansion. The contractionary effect of the large surpluses would offset a BLUNTING THE FEDERAL DEFICIT Although often overlooked, the effects of government spending and taxing decisions on the economy depend on the total of all government units. Traditionally, however, most analysts refer only to Federal budget statistics rather than a summation over all levels of government. One reason for this approach is that historically state and local governments have seldom strayed far from a balanced budget position. Thus, the total government deficit (or surplus) position ap proximated the Federal deficit (or surplus). Hence, in terms of the impact of the deficit (or surplus) no great error was made in con centrating on the Federal sector rather than the total government budget. Surpluses chalked up at lower levels of government over the past three years made the Federal deficit a poor indicator of the public sector's overall fiscal stance. As Chart 4 shows, the Federal budget position was a close approximation of the total government surplus or deficit through 1969. Beginning in 1970, state and local surpluses generated a 3 New York Times, February 27, 1973, p. 14. 24 FEDERAL RESERVE BANK OF PHILADELPHIA CHART 4 THE NEAR BALANCING OF STATE AND LOCAL BUDGETS BEFORE 1970 MEANT THAT THE FEDERAL BUDGET POSITION WAS A CLOSE APPROXIMATION OF THE TOTAL GOVERNMENT SURPLUS OR DEFICIT Billions of Dollars ........ 20 TOTAL GOVERNMENT ................... FEDERAL GOVERNMENT ■ STATE AND LOCAL GOVERNMENT 15 ---------------------------------------------------------------- 1950 Source: 1955 1960 1965 small. Indeed, it could be small enough to serve as a brake on economic expansion in 73 and 74, rather than contribute to an overheated boom as some have suggested. substantial portion of the stimulative effect of the Federal deficit as was the case in 72. Thus, the total fiscal impact of the public sector on the economy could be relatively 1970 U. S. Department of Commerce, Survey of C urrent Business 25 MARCH 1973 BUSINESS REVIEW APPENDIX STATE AND LOCAL BUDGETS, THE FEDERAL DEFICIT, AND THE NATIONAL ECONOM Y Tables 1-3 contain estimates of the effects of alternative courses for state and local budgets on the Federal deficit, Gross National Product (GNP), the implicit Price Deflator for Gross National Product (IPD), and the unemployment rate (U).* Table 1 is a projection based on the assumption that state and local governments continue to behave as they have in the recent past. This results in surpluses in their budgets of $12.5 billion in 1973 and of $9.1 in 1974. These surpluses offset a large portion of the Federal deficit for this period so that in total the government deficit position is only slightly greater than $7 billion in 1973 and drops to less than $2 billion in 1974. Despite the contractionary impact of the state and local budget posi tion, the unemployment rate declines in both 1973 and 1974, inflation as measured by the Implicit Price Deflator rises, and nominal GNP continues to grow at a rapid clip. TABLE 1 SURPLUSES CONTINUE 1972 1973 1974 162.7 175.4 12.7 179.8 192.3 12.5 201.7 210.8 9.1 246.7 228.7 -1 8 .0 270.2 250.4 — 19.8 281.9 271.1 —10.8 —5.3 1151.9 (9.7) 145.9 (3.0) 5.6 State and Local Budgets Expenditures Revenues Surplus/Deficit Federal Budget Expenditures Revenues Surplus/Deficit Total Government Surplus/Deficit GNP (Percentage change) IPD (Percentage change) U — 7.3 1262.2 (9.6) 150.4 (3.1) 4.9 — 1.7 1350.9 (7.0) 155.9 (3.7) 4.8 * Each of these estimates was prepared using a modified version of the MIT-PENN-SSRC Quarterly Econometric Model. Major policy variables were held constant over the three forecasts. In particular, all Federal expenditures except transfer payments to unemployed persons were held constant. The in crease in state and local expenditures was assumed to be distributed proportionally across all items categorized as purchases of goods and services in the National Income Accounts. The tax decrease was distributed proportionally between the two major tax items— indirect business taxes and personal income tax and nontax receipts. The latter procedure resulted in a smaller impact on disposable in come for the tax-decrease alternative since the largest part of the decrease feeds through the corporate sector with its high marginal tax rate at the Federal level. 26 FEDERAL RESERVE BANK OF PHILADELPHIA TABLE 2 SURPLUS ELIMINATED BY EXPENDITURE INCREASE 1972 1973 1974 162.7 175.4 12.7 187.3 192.3 5.0 210.8 210.8 0.0 246.7 228.7 —18.0 269.3 252.5 — 16.8 281.1 274.2 —6.8 —5.3 1151.9 (9.7) 145.9 (3.0) 5.6 State and Local Budgets Expenditures Revenues Surplus/Deficit Federal Budget Expenditures Revenues Surplus/Deficit Total Government Surplus/Deficit GNP (Percentage change) IPD (Percentage change) U — 11.8 1275.7 (10.7) 150.9 (3.4) 4.1 -6 .8 1370.4 (7.4) 157.3 (4.3) 4.2 Tables 2 and 3 illustrate the effects of two alternative paths to a balanced budget for the state and local sector. In both cases it is assumed that the sector surplus is reduced to $5 billion in 1973 and that the budget is balanced in 1974. In Table 2 this is achieved by holding revenues at the level in Table 1 and increasing expen ditures, and in Table 3 by holding expenditures at the level in Table 1 and decreas ing taxes. Notice first the very similar paths for both the Federal Government and total budget deficit in the two tables and compare them with very different courses for GNP, price inflation, and unemployment. This is a striking example of the importance of the level and composition of the budget as opposed to the surplus/deficit position. In Table 2 the stimulus of the increased expenditures results in a GNP for 1973 more than $10 billion greater than that in Table 1 and for 1974 almost $20 billion higher. The inflation rate is concomitantly higher and the unemployment rate lower. While the total government deficit increases it does not increase by the full amount of the reduction of the state and local surplus since the base for Federal tax collec tions has increased and the deficit at that level has been reduced. 27 BUSINESS REVIEW MARCH 1973 TABLE 3 SURPLUS ELIMINATED BY TAX DECREASE 1972 1973 1974 162.7 175.4 12.7 179.8 184.8 5.0 201.7 201.7 0.0 246.7 228.7 — 18.0 270.1 254.1 —16.1 281.7 277.0 —4.7 —5.3 1151.9 (9.7) 145.9 (3.0) 5.6 State and Local Budgets Expenditures Revenues Surplus/Deficit Federal Budget Expenditures Revenues Surplus/Deficit Total Government Surplus/Deficit GNP (Percentage change) IPD (Percentage change) U —11.1 1264.7 (9.8) 150.4 (3.1) 4.8 —4.7 1357.9 (7.4) 156.0 (3.8) 4.7 In Table 3 reduction in state and local taxes stimulates income only slightly since in 1973 more than half the reduction is offset by increased Federal taxes and in 1974 more than two-thirds is offset. Despite the small differences in the total gov ernment budget deficit between Tables 2 and 3, output, employment, and inflation in the latter case follow a path much closer to that of Table 1. Each of the two courses of adjustment back to a balanced budget has an expansionary impact on the economy but tax reductions will have a much smaller impact than expenditure in creases. The two main reasons for this differential impact are (1) even when the tax reduction results in an equal increase in disposable income the fact that consumers will save some part of it means that it will not be as stimulative as an equal in crease in expenditures, and (2) a decrease in taxes at the state and local level will not be as stimulative as an equal decrease at at the Federal level. This is because a decrease at the Federal level implies an increase in disposable income of equal amount while a decrease at the state and local level results in a smaller increase because Federal income taxes will take a chunk of the return. The alternative courses presented are not necessarily equally probable, rather they were selected only to demonstrate the possible extremes of adjustment. Legal re strictions, on both the use of social insurance funds and deficit positions of certain local governments, may cause the occurrence of the extremes to be highly unlikely. The information to be gleaned from these simulations is intended only to demon strate the size of the effects from possible forms of adjustment. 28 FEDERAL RESERVE BANK OF PHILADELPHIA BANK EARNINGS Anatomy of profitable medium-size banks in the Fourth District, 1966-1970— Cleve Oct 72 p 20 BANK HOLDING COMPANY ACT 1956 Orders under Section 3— FR Bull Nov 72 p 984 BANK LOANS— CONSUMER BANKING IN THE CONSUMER PROTECTION AGE available— Rich Oct 72 p 16 BANK MERGERS Concentration in banking markets: Regulatory numerology or useful merger guideline?— Atlanta Nov 72 p 186 BANK PORTFOLIOS Linear programming: A new approach to bank portfolio management— Rich Nov 72 p 3 BANK STATEMENTS SELECTED DATA for individual banks available on tape at $50 from Board of Governors— FR Bull Dec 72 p 1038 BANKING STRUCTURE Does banking structure spur economic growth?— Phila Nov 72 p 14 Recent developments in Fifth District banking— Rich Dec 72 p 9 BRANCH BANKING Banks and branches— San Fran Dec 72 p 3 BUDGET Ambiguity of a $250 billion budget ceiling— Bost Nov 72 p 16 The Federal budget: From surplus to deficit— St. Louis Nov 72 p 2 The Federal budget: Retrospect and prospect— Rich Dec 72 p 3 The Fed in Print , , Business Review Topics Fourth Quarter 7972 Selected by Doris Zimmermann Articles appearing in the Federal Reserve Bulletin and in the monthly reviews of the Federal Reserve banks during the fourth quarter of 1972 are included in this compila tion. A cumulation of these entries covering the years 1969 to date is available upon lequest. If you wish to be put on the mailing list for the cumulation, write to the Publica tions Department, Federal Reserve Bank of Philadelphia. To receive copies of the Federal Reserve Bulletin, mail sixty cents for each to the Federal Reserve Board at the Washington address on page 33. You may send for monthly reviews of the Federal Reserve banks, free of charge, by writing directly to the issuing banks whose addresses also appear on page 33. AGRIBUSINESS Farmers and acreage— San Fran Dec 72 p 7 BALANCE OF PAYMENTS The travel gap— Chic Oct 72 p 7 BANK COMPETITION Competitive outlook in banking (Balles)— San Fran Nov 72 p 3 BANK CREDIT CARDS Do grocery stores provide a potential new market?— Dallas Oct 72 p 7 District banks report problems getting underway— Dallas Dec 72 p 6 29 BUSINESS REVIEW MARCH 1973 EDUCATION— FINANCE Who pays the school property tax?— Kansas City Nov 72 p 3 Property tax and school finance— Kansas City Dec 72 p 3 ELECTRIC POWER INDUSTRY The energy crisis: Scarcity amid affluence— Phila Nov 72 p 3 EMPLOYMENT Gains widespread— Chic Dec 72 p 2 BURNS, ARTHUR F. Statement to Congress, December 7, 1972 (mortgages)— FR Bull Dec 72 p 1013 BUSINESS FORECASTS AND REVIEWS Up, up, and away— Chic Oct 72 p 2 Financial developments in the third quarter of 1972— FR Bull Nov 72 p 947 The economic outlook (Francis)— St. Louis Nov 72 p 5 1972-a year of rapid economic expansion— St. Louis Dec 72 p 2 FARM CREDIT Impact of insurance companies on farm lending— Atlanta Dec 72 p 210 CAPITAL MOVEMENT The regulation of short-term capital movements in major industrial countries (Staff Ec Studies Oct 72)— FR Bull Nov 72 p 955 FEDERAL FUNDS MARKET Sixth District member bank borrowings increase— Atlanta Oct 72 p 181 CENTRAL BANKS Confessions of a new central banker (Balles)San Fran Oct 72 p 3 FEDERAL RESERVE CREDIT CONTROL FEDERAL RESERVE POLICY-MAKING available— Atlanta Nov 72 p 193 COAL INDUSTRY Coal makes a comeback in West Virginia— Rich Oct 72 p 12 FEDERAL RESERVE SY STEM PUBLICATIONS The Fed in Print— Phila Dec 72 p 25 CORPORATE FINANCE And liquidity 1968-1972— Rich Nov 72 p 12 FINANCE COMPANIES Survey of finance companies, 1970— FR Bull Nov 72 p 958 CORRESPONDENT BANKS The impact of changing check clearing arrangements on the correspondent banking system— Kansas City Dec 72 p 14 FLORIDA Supercalifragilisticexpialidocious growth returns to Florida— Atlanta Oct 72 p 176 CREDIT CARDS Liability limitation— FR Bull Nov 72 p 979 FOREIGN DEPARTMENT BANK District banks' international activities accelerate— Atlanta Dec 72 p 215 DISCOUNT OPERATIONS Obligations eligible amendment— FR Bull Nov 72 p 983 FOREIGN TRADE THE PACIFIC TRADE BASIN availableSan Fran Nov 72 p 19 30 FEDERAL RESERVE BANK OF PHILADELPHIA INCOMES POLICY The economics of incomes policies— Rich Oct 72 p 3 OLD AGE Impact of inflation on the elderly— Cleve Oct 72 p 3 The retirement decision: Social pressures and economic trends— Kansas City Nov 72 p 14 INDUSTRIAL PRODUCTION INDEX 1971 EDITION available at $4.00 from Board of Governors— FR Bull Dec 72 p 1037 ONE-BANK HOLDING COMPANIES Before the 1970 amendments— FR Bull Dec 72 p 999 INFLATION The inflation unemployment trade-off— Rich Oct 72 p 10 OPEN MARKET OPERATIONS Federal Reserve defensive behavior and the reverse causation argument— FR Bull Nov 72 p 956 Record of policy actions, August 15, 1972— FR Bull Nov 72 p 973 Record of policy actions, September 19, 1972— FR Bull Dec 72 p 1017 PENNSYLVANIA— BRANCH BANKING Changing Pennsylvania's branching laws: An economic analysis— Phila Dec 72 p 3 KENTUCKY Economic growth and change in Kentucky, 1960-1970— Cleve Oct 72 p 33 LIVESTOCK INDUSTRY District farmers and the expanding cattle-feeding industry— Chic Dec 72 p 5 (LOANS,) INDEX-LINKED Inflation insurance: An “ escalator clause" for securities?— Phila Oct 72 p 3 PETROLEUM INDUSTRY With loss of spare reserves role of Commission changes— Dallas O ct7 2 p 1 Oil imports— two District states bid for superports— Dallas Dec 72 p 1 REGIONAL ANALYSIS Regional growth: The whys and wherefores— Phila Oct 72 p 18 MEAT INDUSTRY Meat prices— too high or about right?— St. Louis Oct 72 p 3 MISSISSIPPI Economic expansion in the Central Mississippi Valley— St. Louis Nov 72 p 9 MOBILE HOMES And the housing supply— Chic Nov 72 p 2 MONETARY STABILIZATION Reciprocal currency arrangements— Bost Nov 72 p 3 REGULATION D Effective dates of amendments— FR Bull Nov 72 p 979 Effective date of amendments— FR Bull Nov 72 p 994 MONEY SUPPLY Money stock control— St. Louis Oct 72 p 10 NEGROES Southeastern banks and SBA increase lending to minority enterprises— Atlanta Oct 72 p 166 REGULATION G Amendment November 24,1972— FR Bull Dec 72 p 1024 Change in margin requirements— FR Bull Dec 72 p 1037 31 MARCH 1973 BUSINESS REVIEW TENNESSEE Economy builds up momentum for further gains—Atlanta Nov 72 p 194 REGULATION Effective date of amendments— FR Bull Nov 72 p 979 Effective date of amendments— FR Bull Nov 72 p 994 TEXTILE INDUSTRY Sizing up textiles— Atlanta Dec 72 p 206 REGULATION T Amendment November 24,1972— FR Bull Dec 72 p 1024 Change in margin requirements— FR Bull Dec 72 p 1037 TRANSFER OF FUNDS Evolution of the payments mechanism— FR Bull Dec 72 p 1009 REGULATION U Blocks of stock periods— FR Bull Nov 72 p 983 Amendment November 24,1972— FR Bull Dec 72 p 1024 Change in margin requirements— FR Bull Dec 72 p 1037 TRUST DEPARTMENT— BANK The functions and investment policies of personal trust departments— N .Y. Oct 72 p 255 UNEMPLOYMENT Recent trends follow movement in GNP gap— Dallas Nov 72 p 1 The Southwest fares better than the nation— Dallas Nov 72 p 7 REGULATION Z Amendment December 15,1972— FR Bull Nov 72 p 979 SAVINGS DEPOSITS Flousehold savings at commercial banks: Bigger slice of a bigger pie— Phila Nov 72 p 8 VETERANS-EMPLOYMENT Vietnam Vets and the job scene— Phila Oct 72 p 13 SHIPPING On the water front— San Fran Oct 72 p 9 VOLUNTARY FOREIGN LOAN CREDIT RESTRAINT, 1965 Amendment November 7,1972— FR Bull Nov 72 p 995 Amendment December 1,1972— FR Bull Dec 72 p 1037 TAX REVISION The outlook for changes in Federal taxation— St. Louis Dec 72 p 11 32 FEDERAL RESERVE BANKS AND BOARD O F GOVERNORS Federal Reserve Bank of Kansas City Federal Reserve Station Kansas City, Missouri 64198 Publications Services Division of Administrative Services Board of Governors of the Federal Reserve System Washington, D. C. 20551 Federal Reserve Bank of Minneapolis Minneapolis, Minnesota 55440 Federal Reserve Bank of Atlanta Federal Reserve Station Atlanta, Georgia 30303 Federal Reserve Bank of New York Federal Reserve P.O. Station New York, New York 10045 Federal Reserve Bank of Boston 30 Pearl Street Boston, Massachusetts 02106 Federal Reserve Bank of Philadelphia 925 Chestnut Street Philadelphia, Pennsylvania 19101 Federal Reserve Bank of Chicago Box 834 Chicago, Illinois 60690 Federal Reserve Bank of Richmond P.O. Box 27622 Richmond, Virginia 23261 Federal Reserve Bank of Cleveland P.O. Box 6387 Cleveland, Ohio 44101 Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri 63166 Federal Reserve Bank of Dallas Station K Dallas, Texas 75222 Federal Reserve Bank of San Francisco San Francisco, California 94120 33 FOR THE REC O R D ... 2 YEARS AGO YEAR AGO DECEMBER 1972 Third Federal Reserve District SU M M A R Y from mo. ago MANUFACTURING Production....................................... Electric power consumed . . . N/A Man-hours, total*..................... - 2 Employment, total........................ Wage income*................................ - 2 CONSTRUCTION**.......................... +73 COAL PRODUCTION....................... +12 Percent change 1 J a n .1973 mos. 1972 from from year age year ago mo. ago year ago + 2 +11 N/A + 4 Manufacturing year ago LO C A L CH AN GES Metropolitan Statistical Areas* Check Total Payments** Deposits*** Percent change Jan 1973 from Percent change Jan. 1973 from Wilmington..................... 0 + 3 - + llt PRICES Wholesale. Consumer. ‘ Production workers only “ Value of contracts Digitized♦“ Adjusted for seasonal variation for FRASER http://fraser.stlouisfed.org/ H H H n n Federal Reserve Bank of St. Louis +31 f 3 -- 6 +12 + 1 - + 9 + 36 - 7 6 -8 8 6 + 12 +16 + 18 + l +18 2 -10 1 + 4 N/A 1 + 2 - Altoona............................. + 5 +14 - - f 1 + 1 + 1 + 6 + 9 + 27 + 1 +18 1 + 3 + 2 0 +2 0 0 +1 0 +6 +12 +19 + 7 + 4 + 9 +25 - +1 0 +12 + 1 +12 1 + 7 +18 N/A N/A + 2 N/A +10 + 42 +10 +16 +14 + 30 + 7 + 4 0 +20 +14 + 18 + 1 +14 +40 + 2 +158 + 1 +16 - 2 +12 + 9 + 28 + 1 +16 - 1 + 1 - 2 +10 - 1 + 2 + 1 +13 Lehigh Valley................. Philadelphia................. 1 + 3 +12 + 30 - Scranton........................... - 1 - 1 - 2 1 - 2 2 + 5 + 4 + 44 N/A York................................... - N/A - N/A 1 + 1 - 3 1 +14 + 7 + 15 + 1 +19 Wilkes-Barre.................. - fl5 SMSA's ^Philadelphia mi + 3 N/A 5 +13 Harrisburg....................... - Williamsport................... Of + 3t Percent change J a n .1973 from - Lancaster....................... - 1 +11 - 1 +18 0 + 4 - 1 - 3 0 + 7 Percent change Jan. 1973 from month year month year montf year month year ago ago ago ago ago ago ago ago Johnstown....................... BANKING (All member banks) Deposits............................ Loans................................. Investments.................... U.S. Govt, securities. Other............................. Check payments***... Banking Employment Bridgeton........................ +12 1 1 mos. 1972 from DECEMBER 1972 Trenton............................ - 1 +2 +53 - YEAR AGO United States Percent change Jan. 1973 2 YEARS AGO + 6 + 8 + 24 + 1 +14 0 +33 N/A +22 + 45 +12 +11 +12 - N/A 40 + 2 +15 ♦Not restricted to corporate limits of cities but covers areas of one or more counties. “ All commercial banks. Adjusted for seasonal variation. “ Member banks only. Last Wednesday of the month. FEDERAL RESERVE ISAAK of PHILADELPHIA PHILADELPHIA, PENNSYLVANIA 19101 b u sin e ss review FEDERAL RESERVE BANK OF PHILADELPHIA PHILADELPHIA, PA. 19101
@FedFRASER