FAIRNESS II: AN EXECUTIVE BRIEFING BOOK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R001903620002-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 292
• Document Creation Date: December 20, 2016
• Document Release Date: December 13, 2007
• Sequence Number: 2
• Publication Date: May 1, 1983
• Content Type: REPORT

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MEMORAND!JM FOR:
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THE WHITE HOUSE
CABESET AFFAM STAFFING l M10 I ATM
-:!:)C-
DATE: 7 / 8 / 8 3 NUMBER: l 18 816 CA DUE BY:
SUBJECT: Fairness II: An Executive Briefing Book
ACTION
ALL CABINET MEMBERS ^
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
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Education
Counsellor
USTR
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OSTP
Selected Agencies
ACTION FYI
Baker ^ ^
Deaver ^ ^
Clark ^ ^
Darman (For WH Stuffing) ^ ^
Harper ^ ^
Jenkins ^ ^
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CCCT/Gunn ^ ^
CCEA/Porter ^ ^
CCFA/Boggs ^ ^
CCHR/Carleson ^ ^
CCLP/Uhlmann ^ ^
CCMAIBledsoe ^ ^
CCNRE/Boggs ^ ^
REMARKS: Enclosed for your use is the Fairness II: An Executive Briefing
Book. You may wish to use this book for background material in
speeches or in written material.
RETURN TO: ^ Craig L. Fuller El Becky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs Cabinet Affairs
456-2823 456-2800
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THE WHITE HOUSE
FAIRNESS II
AN EXECUTIVE BRIEFING BOOK
White House Office of Policy Information
May 1, 1983
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May 1, 1983
This briefing book was prepared by the White House
Office of Policy Information (OPI) with the assistance of
OPI staffers Hal Gordon, Bill Keyes, Angie Smith and
Gary Holmes.
The book is designed to serve as a resource for
Administration officials in dealing with the
Administration's economic program, budget proposals and, in
particular, the "fairness issue." Any questions regarding
the book's contents should be referred to Messrs. Gordon and
Keyes.
The authors wish to express their appreciation for the
prompt and helpful cooperation received from staff members
at OMB, OPD, NSC and the various federal departments.
Kevin R. Hopkins
Special Assistant to the President
Director, White House
Office of Policy Information
Harold C. Gordon
Senior Policy Analyst
Office of Policy Information
The White House
Washington, DC 20500
William A. Keyes
Senior Policy Analyst
Office of Policy Information
The White House
Washington, DC 20500
202/456-6250
202/456-2762
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PART I PAGE
A. THE PROBLEM
1.
The Explosion in Social Spending .........................
1
2.
Sources of the Spending Explosion ........................
2
3.
Economic Consequences of this Spending Explosion .........
4
4.
The Effect on Poverty ....................................
6
5.
The Effect on the Poor ...................................
8
1.
The Answer: Economic Growth Without Inflation ...........
10
2.
The Economic Recovery Program ...........................
13
3.
The President's Budget Freeze and Reform Plan ...........
15
4.
Economic Progress: To Date ..............................
17
5.
Economic Progress: The Future ...........................
20
C. A DOZEN KEY QUESTIONS
1.
Cutting back on programs for poor? ......................
22
2.
Fair to cut programs for poor? ..........................
24
3.
Why cut only programs for poor? .........................
26
4.
In recession, pay special attention to the poor? ........
28
5.
Recession proof Reaganomics failed? .....................
29
6.
How helping the unemployed? .............................
31
7.
Why oppose real jobs bills? .............................
33
8.
Increased infant mortality? .............................
34
9.
Eliminate tax rate cuts? ................................
36
10.
Repeal indexing? ........................................
37
11.
Why exempt defense? .....................................
39
12.
Isn't Democratic budget better? .........................
40
D. KEY CHARTS .................................................
42
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PART II
A. INCOME SUPPORT
1.
Aid to Families with Dependent Children .................
44
2.
Child Health Care .......................................
53
3.
Child Nutrition .........................................
58
4.
Elementary, Secondary and Vocational Education Aid ......
65
5.
Energy Assistance .......................................
73
6.
Food Stamps .............................................
76
7.
Health Care .............................................
86
8.
Housing Assistance ......................................
98
9.
Job Training and Employment ............................
105
10.
Social Security ........................................
116
11.
Social Services ........................................
126
12.
Student Financial Aid ..................................
134
13.
Unemployment Compensation ..............................
142
14.
Veterans ...............................................
149
1.
Agriculture .............................................
155
2.
Export Promotion .......................................
165
3.
Research & Development .................................
170
4.
Small Business ..... ..................................
179
5.
Transportation .........................................
189
6.
Urban Development ......................................
200
1.
Aid to the Arts ...................
206
2.
Administration of Justice ..............................
212
3.
Energy .................................................
219
4.
Environment ............................................
231
5.
Federal Civilian Employment ............................
239
6.
Legal Services Corporation .............................
247
D. NATIONAL SECURITY
1.
Conventional Defense ...................................
251
2.
Foreign Economic & Financial Assistance ................
260
3.
International Security Assistance .......................
268
4.
Military Manpower ......................................
274
5.
Strategic Forces .......................................
280
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o In President Kennedy's first (FY 1962) budget:
-- Fully 46% went for defense; only 27% for social
programs.
-- The U.S. spent $28.7 billion on social programs.
o The 'Great Society" burst the budget at its seams.
-- Non-defense payments to individuals jumped from $28.7
billion in 1962 to $63.2 billion in 1970 -- an increase
of almost 120%. Even in inflation-adjusted dollars,
payments to individuals nearly doubled.
Examples:
* AFDC grew from $827 million in 1963 to $1.7 billion
in 1969 -- an increase of more than 100%.
* Non-cash transfers rose from $2.4 billion in 1965 to
$15.4 billion in 1970 -- a increase of '5_1/2 times.
o During the 1970s, the trend accelerated.
Real social spending in 1981 (spending adjusted for
inflation) was nearly 2-1/2 times the 1970 level.
More examples:
* Food stamps' cost jumped nearly 20 times -- from $577
billion in 1970 to $11.3 billion in 1981.
* Spending on both child nutrition and subsidized
housing increased by more than 10 times.
* SSI and Guaranteed Student Loans -- two programs
which essentially did not exist in 1970 -- spent $9.5
billion in 1981.
o As a result, social spending consumed an ever-larger share
of the nation's GNP.
-- Expenditures on basic retirement, disability and health
programs consumed 3.7% of GNP in 1963; in 1981, they
took 8.3% -- an increase of 125%.
Other nondefense payments for individuals rose from
1.6% of GNP in 1963 to 2.7% in 1981 -- an increase of
nearly two-thirds.
In sum, all non-defense spending (excluding interest
payments) rose from 9.3% of GNP in 1963 to 10.6% in
1970 to 14.9% in 1981 -- an increase of nearly
two-thirds in just 18 years.
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SOURCES OF THE SPENDING EXPLOSION
o Major factors behind the growth in social spending.
-- Between 1965 and 1980, the number of federal programs,
providing means-tested cash or in-kind benefits
doubled.
-- During this time, the number of people receiving such
benefits soared by 300%, from 9 million to 35 million,,'
although the U.S. population grew by only 17%.
-- While aid recipients, on average, participated in only
one means-tested program in 1965, by 1980 they
participated in 3 to 4.
o Why this social spending explosion was far greater thati'it
should have been.
-- Benefits were excessive and poorly targeted, as
indicated by,Census survey data for 1981.
* By 1.981, the year before the President's first budget
fully took effect, $16.9 billion, or 36% of all
benefits, went to families whose cash benefits and-".
other cash income placed them above the poverty
line. These families included 23 million people.
* The lack of targeting was so severe that $8.3 billion
in aid (18% of all benefits) went to families. with
cash incomes above 150% of the poverty level. These
families included 12.7 million people.
* However, these statistics understate the lack of
targeting because they ignore the value of in-kind
benefits (non-cash benefits, such as medical,
nutrition and housing assistance) in measuring
individual and family well-being.
- These benefits constitute nearly two-thirds of all
means-tested aid covered in the survey.
- When these benefits are counted as part of a
family's resources, $39.2 billion in means-tested
programs -- 83% of all benefits -- went to non-poor
families.
- Also, $20.0 billion, or 42% of all benefits, went
to families with total cash and in-kind incomes
above 150% of the poverty line. .
- Examples: AFDC (27% of benefits went to families
with incomes above 150% of poverty); SSI (62%)
food stamps (25%); medicaid (53%); free and reduced
price school lunch (33%); public housing (47%); and
rent subsidy (54%).
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-- Waste and error were rife.
* States, which administer the AFDC, medicaid, and food
stamps programs, improperly paid out $3.5 billion in
benefits in FY 1981.
* In food stamps alone, $1 of every $10 was improperly
paid.
* In 1980, half a billion dollars of medicaid insurance
payments could have been collected, but were not.
* States were failing to ensure that parents who had
left their families met their child support
obligations. Only one-third of AFDC recipients were
covered by court orders, and only half of covered
persons were receiving full payment. Overall, about
$1 billion in court-ordered payments for AFDC
recipients went uncollected in 1981.
* In FY 1981, as much as $500 million was overpaid in
the school lunch program.
-- Programs were poorly designed.
* Work disincentives were so great in aid programs that
only 12.6% of adults receiving AFDC and 17.7% of food
stamp household heads aged 18 to 59 worked at all in
FY 1981 (prior to the 1981-1982 recession).
* In the Section 8 existing housing program, amounts
tenants pay for rent is determined by income.
Because tenants are not actually involved in
negotiating unit rents and because the government
determines "fair market rents," rents for units in
the Section 8 Existing Housing Program average 26%
above rents for comparable non-subsidized units.
* Because of the lack of cost control incentives in
medicaid, medicaid costs rose 354% from 1971-1981, or
an average of 16.3% per year, while the number of
medicaid recipients increased only 1.3% per year --
that is, costs increased 13 times as fast as the
number of recipients even though the general price
index increased an average of only 8.4% per year.
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ECONOMIC CONSEQUENCES OF THIS SPENDING EXPLOSION,
o Inflation worsened.
-- From 1960 to 1965, prices never rose more than 2% in a
year.
-- By 1969, the inflation rate had tripled -- to 6.1%.
-- By 1979 and 1980, it had doubled again, and America
suffered back-to-back double-digit inflation for the
first time since World War I.
-- By 1980, value of a 1960 dollar had shrunk to 364.
-- A pound of hamburger costing 57~ in 1960 had risen to
$1.58, and was heading toward $2.00.
o Interest rates rose.
-- From 1960 to 1965, the prime rate, on an annual basis,
never rose above 5%.
-- Since 1965, the prime rate, on an annual average-`basis,
has not fallen below 5%.
-- The monthly prime rate has.not fallen below 10% since
1978, and from 1979-1981, the prime rate averaged
15.6%.
-- Mortgage interest rates averaged more than 13%'in 1980
-- the highest level in U.S. history at that time, and
double the levels of the early 1960s.
1
-- At that rate, some 90% of those who rented could not
afford to buy a home.
o Unemployment worsened.
-- Whereas unemployment averaged 4.5% in 1951-1960 and'
4.7% in 1961-1970, it averaged 6.4% in 1971-1980 --
more than one-third higher.
-- Whereas the lowest annual unemployment rate in-the
1951-1960 period was 2.9%, and in the 1961-1970 period
was 3.5%, the unemployment rate never fell below 4.9%
on an annual basis in 1971-1980, and never fell below
5.8% on an annual basis in the last half of the decade.
o Effect on the family.
-- Real family incomes increased more than 16% between
1960 and 1965.
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-- Real gamily incomes -- that is, incomes adjusted for
inflation -- were actually lower in 1980 than in 1969.
-- Because taxes increased sharply during this period,
real family take-home pay declined by much more.
-- k Congressional Joint Economic Committee report
calculated that the slowdown in productivity growth in
the 1970s cost the average household $3,700 in income
in 1978.
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c..;`.
,THE EFFECT ON POVERTY':
o Key question: If federal social: spending significantly
improved the -lot' of the poor," wouldfl t some= eognomie=
deterioration be a minor price to
Pad?' -
-- Follow-up question: Did the explosion, "i-n -federal
social. spending actually improve the:'-16t o'f,the poor?
o Three measures of the poverty level:
-- Official poverty level (most common measure): Includes
family's private income plus government cash
assistance.
-- Net poverty level: Includes above, plus government
in-kind assistance (e.g., food stamps, housing aid,
medicaid).
-- Earnings-only poverty level: Includes only family's
earnings (How many people would be poor if not for
government aid?)
o .The course of the "official" poverty level.
-- Between 1950 and 1965 (the year the "Great Society"
began), official poverty fell from an estimated 32% to
17% -- a drop of 15 points in 16 years.
-- Between 1965 and 1969, official poverty fell from 17%
to 12% -- a drop of 5 points in 5 years, exactly what
should have been expected based on previous trends.
-- Then, after two decades of reasonably steady progress,
improvements in poverty slowed in the late 1960s and
1970s.
* A higher percentage of the public (13.0%) were
officially in poverty by 1980 than at any time since
1967.
* There were more people . in poverty in 1980 than in
1966 (29.3 million vs. 28.5 million ; there were five
million more people in poverty in 1980 than in 1969.
-- It was not until the budgets of 1967 and 1968 that the
Great Society programs were reaching enough people to
have a sizable impact on the budget, and thus that
social welfare expenditures began to take off -- yet it
was at that precise time that progress in reducing
poverty came to a grinding halt.
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o The course of the net poverty level.
-- Net poverty is a far more relevant measure of a
family's financial condition than "official" poverty,
because food stamps, housing aid, and the like add to a
family's real resources just. as cash assistance does.
According to figures compiled by Charles Murray, net
poverty declined steadily from 1950 to 1968, falling
from 30% to 10%.
-- Net poverty continued to decline to 6.2% by 1972.
-- Yet despite a tripling of in-kind assistance (in
inflation-adjusted dollars) during the 1970s, net
poverty stood at 6.1% in 1980 -- almost identical to
the 1972 level.
o The course of earnings-only poverty.
-- This is the crucial measure.
* Government's goal should be to create the economic
conditions that will help Americans become
financially independent.
* President Lyndon Johnson in 1964: "We are not
content to accept endless growth of relief or welfare
rolls. We want to offer the forgotten fifth of our
population opportunity and not doles. ... The days of
the dole in our country are numbered."
Between 1950 and 1963, the earnings-only poverty rate
fell by more than one-third, to 17.9%.
-- The proportion of earnings-only poor continued to drop,
falling to 12.0% in 1969.
-- But at that time (again, just when the poverty programs
were taking their full effect), the declines in
earnings-only poverty stopped, despite the fact the
economy was in an economic boom.
* For non-aged persons, the earnings-only poverty rate
reached 17.2% in 1974, and rose to 21.1% by 1981.
* Indeed, once the variations in economic growth are
factored out, one conclusion is inescapable: the
increases in social welfare spending do not account
for any overall reductions in earnings-only poverty
during the last three decades.
o Thus, the social spending explosion has not eliminated, or
even reduced, the nation's true poverty problem; it has
only papered over the problem.
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THE EFFECT ON THE POOR
o Not only has the explosion in social spending failed to
reduce real levels of poverty, but it has actually made
life worse in many ways for low-income Americans,.
o The poor have suffered the most from economic
deterioration.
-- Despite receiving an increase in dollar benefits of
about one-third over the 1970s, the average AFDC
recipient lost nearly 30% in benefit purchasing power
during the decade because of inflation.
-- Inflation in 1979 alone translated into a loss to a
four-person poor family of $750 in purchasing power.
-- Because the poor spend up to 70% of their family
budgets on necessities, there were very few ways they
could cut back to beat inflation.
-- Yet the economic slowdown, and its attendant loss of
job opportunities, left the poor with no real
alternative but to subsist on these shrinking real
resources
o The poor have become more, rather than less, dependent on
federal aid for their economic existence.
-- According to figures compiled by Charles Murray,
whereas in 1950 only 3% of the non-poor population
depended on government aid to keep them out of poverty,
by 1968, this level had increased by three times, to
9%, and by 1980, it had nearly doubled again, to 17%.
-- Indeed, the Great Society programs' economic
disincentives to becoming self-sufficient were so great
that the proportion of low-income Americans holding- a
job fell by 1.4 points between 1968 and 1980.
o The poor have suffered from increasing family
disintegration.
-- The Great Society programs were so structured that'they
rewarded family break-up (such as through the provision
of higher benefits for families where the husband was
not present) and likewise increased the cost of
families remaining together.
-- At least partially as a result, the percent of intact
husband-wife low-income families fell from 72% in 1965
to 49% in 1980 -- a drop of one-third.
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o The dilemma.
-- Because of this, low-income Americans, to an increasing
extent, depend on government aid to help meet their
basic needs, putting further upward pressure on social
spending budgets.
-- The explosion in social spending to meet these demands
has worsened economic conditions, making it nearly
impossible for the poor to become financially
self-sufficient.
-- Key question: How to slow the growth of social
spending while maintaining aid to those who truly need
it.
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THE ANSWER: ECONOMIC GROWTH WITHOUT INFLATION-.'.,.-
o The problem: How to improve low-income Americans'
economic conditions (i.e., increase their incomes) while
simultaneously preserving overall economic health.
o The wrong answer: Throwing money at the problem.
-- The painful. consequences of the social spending.
explosion of the last decade and a half speak for
themselves.
These consequences are inevitable whenever.sp.ending._is
left to grow unchecked:
* Every dollar spent by the federal government must be
taken away from the private sector, either through
taxation or borrowing.
* Left with fewer resources, the private economy's
activity will be lower, and its job opportunities
fewer.
* Since the federal government is generally far less
efficient at creating jobs than is the private
sector, the loss of private sector jobs brought about
by a transfer of resources to the federal government
will almost always be greater -- often substantially
greater -- than the number of jobs created by the
federal spending. Hence, the total number of jobs in
the economy will fall below what it otherwise would
have been.
* At a given level of monetary growth, higher
government spending also typically produces higher
inflation rates because:
- Fewer goods and services, at the same level of
monetary growth, causes prices to be bid up.
- Growing budgets generally create pressures for
faster monetary growth which, everything else being
equal, only further fuels inflation.
The poor suffer the most from both unemployment and
inflation.
o The right answer: Economic growth without inflation.
-- Economic growth creates jobs.
* During the years 1950-1980:
- In the 18 years in which the economy grew by 3% or
more, an average of more than 1.8 million new jobs
were created each year.
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- In the 13 years in which the economy grew by less
than 3%, an average of less than 710,000 new jobs
were created each year -- nearly two-thirds less.
- In the 7 years in which the economy grew by less
than 2%, an average of only 29,000 new jobs were
created each year -- less than 2% as many as were
created, on average, in the high-growth years.
* Jobs are vital; only through productive private
sector jobs can low-income Americans gain a foothold
on the economic ladder, and eventually -- as they
begin to climb the ladder -- become economically
self-sufficient.
* Even in the short-term, low-income individuals who
work are economically better off than those who do
not. For a person e.g.; divorced mother of two) at
the poverty level, her income will be from 61% to
149% higher if she has a full-time minimum wage job
than if she has no job and tries to subsist only on
government assistance.
-- Economic growth helps the poor escape poverty.
* According to a calculation by Charles Murray, the
official poverty rate fell by nearly two-thirds over
1950-1968, when economic growth averaged 4.1%.
* The poverty levels remained essentially unchanged
between 1969 and 1980, when economic growth averaged
2.9% -- nearly one-third lower than in 1950-1968.
* In fact, every 10% increase in economic growth is
associated over this period with a 7% decline in the
poverty level.
-- Keeping inflation down protects these gains.
* Lower inflation leads to lower unemployment.
- From 1970 to 1972, the inflation rate fell by more
than a third. In 1973, the unemployment rate fell
below 5% for the first. time in three years.
- From 1974 to 1976, the inflation rate fell by more
than half; from 1975 to 1979, the unemployment rate
fell by nearly one-third.
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Lower inflation increases the poor's purchasing
power.
A poverty level family with a constant income will
have nearly, 5 greater purchasing power in a year
in which inflation is 5% instead of 10%.
This low-inflation dividend is especially important
to theme, who spend the large majority of their
incomes on necessitites.
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o Reduce the growth of federal spending.
-- Spending grew by 17.4% in 1980 and 14.0% in 1981.
-- President Carter had planned to reduce spending growth
by 1984 to 8.9%; President Reagan's budget will hold
spending growth to 5.4% -- more than a third lower.
-- Excluding uncontrollable interest payments, President
Carter's 1984 budget was to have held spending growth
to 10%; President Reagan's 1984 budget will hold
spending growth to 4% -- nearly two-thirds lower.
-- Whereas spending grew an average of $79 billion per
year over the three years from 1979 to 1982, it would
grow by only about half that much -- $43 billion -- in
1984.
o Reduce tax rates.
-- Individual income tax rates will have fallen by 25% by
July of this year, helping to offset much of the huge
tax increases that had been planned by the previous
Administration.
-- Tax indexing, to begin in 1985, will ensure that
taxpayers are not forced into higher tax brackets by
inflation.
-- Business tax rates have been substantially reduced
through accelerated depreciation, which will help spur
investment as the economy recovers.
-- President Reagan has pledged to veto attempts by
Congress to increase taxes on Americans through repeal
or postponement of either the third year of the tax
rate cut or indexing.
o Reduce unnecessary regulation.
-- Task force under direction of the Vice President has
pared unnecessary regulations that would have imposed
on the economy an additional one-time investment cost
of as much as $11 billion and annually recurring costs
of $6 billion.
-- These savings will free capital to go into job-creating
and productivity-enhancing investments.
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-- Prime example: Decontrol of oil prices, which has
helped bring the, country its lowest. gasolin& prices,,in
.
three years.. Consumers and businesses; have' benefited,
meaning that more money can now go to j,ob-creation and
less, to OPEC.
o Support stable and moderate monetary, growth,.
-- Needed to keep inflation and interest rates. down.
row
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o Key points:
-- Maintains and advances President's Economic Recovery
program.
-- Results in almost no real growth in the 1984 budget.
-- Saves at least $303 billion in budget outlays over
1984-1988 -- even more if the economy grows faster.
-- Reduces spending from 25.1% of GNP in 1983 to 22.9% of
GNP in 1988.
-- Preserves necessary spending for those in need.
-- Maintains essential defense build-up at $55 billion
lower 5-year cost.
o Budget totals at a glance:
1983 1984 1985 1986 1987 1988
Outlays 809 844 917 988 1058 '1125
Receipts 5,98 654 732 844 921 1023
Deficit 210 190 185 144 137 102
o Elements of the plan:
-- 1984 spending freeze measures.
* No increase in civilian military pay and retirement.
* 6-month COLA freeze for Social Security and related
indexed benefits.
* Freeze on aggregate non-defense discretionary
programs, medical provider reimbursement and farm
price supports.
-- Long-term structural reform.
* Bi-partisan Social Security Solvency Plan which cuts
$79 billion from 1984-88 spending-revenue gap.
* Health care reform and efficiency incentive package
involving $58 billion in 5-year savings from
Medicare/Medicaid and private health insurance cap.
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* Major reforms of civil service retirement; better
targeting of means-tested entitlements and ve=terans
benefits.
-- Maintenance of defense build-up at lower cost.
* $55 billion in pay, fuel, inflation and program
economies and sayings over '5 years.
* Fully protects strategic programs, readiness and
sustainability initiatives and conventional forces
modernization.
-- Contingency tax increase proposal.
* Standby tax equal to a 5% surcharge on 1% of
corporate and individual tax liability and a $5 per
barrel oil excise tax'.
* Triggered in FY 1986-88 ONLY IF budget freeze and
spending reforms are adopted, deficit is'above'225$
of GNP, and economy is in recovery.
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o Inflation
-- The inflation rate averaged 12.9% in 1979-1980.
-- Inflation fell to 8.9% in 1981 and to 3.9% in 1982 --
the lowest level in a decade.
-- Prices are virtually unchanged over the last five
months.
-- Gasoline prices are at their lowest point in three
`tears.
-- As a result, a median-income family with a fixed income
has $1850 more in purchasing power than they would have
had inflation remained at the 1979-1980 level; a
poverty-level family living on a fixed income has $753
more in purchasing power than they would have.
o Interest rates.
-- The prime rate.
* Hit 21.5% in January 1981.
* Is now down to 10.5% -- a cut of more than half and the lowest level since October 1978.
-- 90-day Treasury bills.
11.4% in 1980, peaking at'16.3 in May 1981.
* Now down to 8.4%, a decline of nearly one half.
-- Home mortgage rate.
* Heading upward from 12.7% in 1980 to 14.7% in 1981 to
peak of 15.9% in May 1982.
* Has now gone down for eight of last nine months, and
is at two-and-a-half-year low, reducing monthly cost
of $50,000 mortgage by $200 over last year's peak
rate.
o Average real hourly earnings.
-- Fell by 8.5% from 1978 to 1981.
-- Rose in 1982 for first time in four years.
o Savings rate.
-- Declined by nearly one-sixth from 1976 to 1980.
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-- Rose in both 1981 and 1982.
-- 1982 rate of 6.5% is highest since 1976.
o Productivity.
-`- Fell in each of 1979 and 1980.
-- Rose in each of 1981 and 1982, reaching an all-time
high.
o Stock market.
-- Market--level (Dow-Jones industrial average) in every
year from 1977 to 1980 was lower than 1976 level.:-
'Market reached all-time high in March 1983, one-third
higher than 1980 level, and up by one-half since just
...last August.
o Unemployment.
-- Unemployment had been rising almost steadily since
mid-1979.
-- Through February, initial unemployment claims had been
declining for 4 of the last 5 weeks.
-- The unemployment-rate has declined a full one-half
point in the last three months. While it may fluctuate
somewhat for a few months, the peak has clearly been
reached.
o Econcinic recovery is here. There are clear signs that the
economy is turning. around, and that the recession is
nearly over:
-- The economy grew at a brisk 3.1% in the first quarter
of 1983 -- the largest quarterly rise in 2 years.
-- The index of leading indicators has risen for six
consecutive months -- up 3.5% in January, the biggest
gain in 33 years, and up another 1.4% in February
another strong gain.
-- Industrial production rose 1.3% in January -- the
largest increase in a year, and rose again in February
for the third consecutive monthly increase.
-- The housing sector is already experiencing strong
recovery.
* New housing starts in February were twice their
October 1981 low, bringing housing starts to their.
highest level since September 1979.
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* Permits more than doubled over the same period.
* New home sales have grown by 63.2% since April 1982.
* In January, inventories of unsold homes have recently
hit their lowest levels recorded in more than a
decade.
Automobile sector.
* Auto sales for the first 10 days of April. were u2
32.5$ adjusted) over the same period last year.
* Auto production is scheduled to rise 20% (not
annualized) in the first quarter of 1983.
-- Also important non-auto groups such as durable goods
and clothing have turned up in the fourth quarter.
-- Profit margins in the non-financial corporate sector
increased at an average annual rate of about 7.6% in
the second half of 1982, reflecting a better alignment
of costs and prices.
-- The sharp inventory liquidation in the fourth quarter
of last year sets the stage for strong recovery in
1983. As retail sales continue to improve, businesses
will increase production and employment to meet rising
demand.
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ECONOMIC PROGRESS: THE FUTURE
o The recovery.
-- Economic. growth.
* The economy should grow at least 4.3% in real terms
in 1983, and 4% each year thereafter through 1988.
*'This is a cautious forecast; some economists think
the economy will grow much more rapidly.
* Still, such A recovery is in sharp 'comparison to'-most
t
l
id
i
,..
not.
as
ch d
previous recoveries, wh
Late 1980 "recovery" lasted only a few.months.
1970 recovery lasted only three years.
1958 recovery lasted only two years..
--.Unemployment.
* Unemployment rate should fall steadily from 10.0% in
1983 to 9.1% in 1984 to 6.2% by 1988.
* This recovery will create at least 15 million, new
jobs by the end of 1988.
- This compares very favorably with the 21 million
new jobs throughout all of the 1970s.
- Under the Administration's.economic
assumptions, there will be 2.6 million new jobs
this year, and another 2.6 million in 1984, for a
total of 5.2 million new jobs by the end of 1984.
o Inflation.
-- Inflation (CPI) should remain at or below 5% every
year through 1988, and will be trending downward.
* The inflation rate has not remained at or
for more than two years running since the
below
1960s.
5%
--
In
fact, the
only
other two
postwar
recoveries lasting
as
much as 5
years
or more
brought
with them huge
jumps
in
inflation.
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* During the 1975-1979 recovery, (actually 4 years and
9 months long , inflation rose from 4.8% in 1976 to
13.3% in 1979.
* During the 1961-1969 recovery, inflation rose from
less than 1% in 1961 to 6=.l%-in 1969.
o Interest rates.
-- The 90-day Treasury bill rate should trend downward
from 8.0% in 1983 to 6.1% in 1988.
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1. Doesn't the Reagan budget cut back sharply on programs
for the poor.?
-- Arguments can be made about the allocation of monies
among 'thdse programs, but there is no overall
inadequacy of funds.
1970 after adjusting for inflation cannot e
neglecting domestic welfare entirely.
* Any budget that spends nearly. twice as much. as,-
-- The 1981 budget contains one-half trillion, dollars for
non-defense spending other than interest,.-
* In constant terms that is almost identical
1981 level, and 88% higher than in 1970.
o The budget totals are more than sufficient.
* Of the half-trillion in non-defense spending, $424
billion is for transfer payments and social programs.
* The estimated number of elderly, non-elderly poor and
non-poor unemployed is 65 million.
* Thus, one way of viewing the budget is that the $424
billion works out to $6500 per person and $26,000 per
family of four for these categories of citizens.
- While this is not a precise measure of assistance
per person or family, it gives an idea of the huge
domestic spending total.
- If too little of this money is reaching the needy,
it is the fault of the distribution system, and not
the lack of money.
o funding for key social programs is sufficient.
-- Spending proposed in the FY 1984 budget for 15 key
social'programsl -- $356.3 billion -- is 45% higher
than the amount spent on the same programs in 1980.
-- Adjusted for inflation, the proposed spending levels
are:
* About 11% higher than in 1980.
1 Elementary, secondary and vocational education; higher
education; training and employment; social services;
medicare; medicaid; social security; unemployment
compensation; housing assistance; food stamps; child
nutrition; AFDC; SSI; energy assistance; earned income tax
credit.
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* About 4% higher than. the average amount spent in the
last four years.
* Within 1% of the FY 1984 levels proposed by President
Carter for the 15 programs.
* Equal to or-greater than the 1980 spending levels for
each of the six largest spending programs, including
medicare, medicaid, housing assistance and food
stamps.
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2. Why is it fair to make any cats in programs ,, for. the
poor?
o Almost all programs for, the poor spend?significant amounts
of money on the non-needy.
For example,.. o.f the .$47 billion in ,means-,tested ..
programs reflected -in, Census, survey'-data. for -1981?-fully
$ 20 bi.llion or 42.%, o,f .those funds went to. fa4m~.Yies
whose total incomes, including in-kind benefits,,, were
at or above 150% of the poverty line.
-- 150% of the poverty line in 1981 was $13,930 for a
family of four -- an income level equal to 92% of the
median annual earnings of employed workers that year.
-.- Thus, a large share of program beneficiaries were
receiving nearly.as much as or more than was earned by
those who were being taxed to support them -- a truly
unfair situation.
o Program changes made in the first two years of the Reagan
Administration are designed to reduce or eliminate
benefits to those who do not deserve them, and to target
them instead to the truly needy.
0
In food stamps, Congress approved the Administration
proposal to limit food stamp eligibility to families
with incomes no higher than 130% of the poverty level.
-- In the school lunch program, the only significant
change was to cut back sharply on the subsidy for meals
served to children from middle- and upper-income
families with incomes above 185% of the poverty level,
Poor children continue to get their lunches free.
-- In student financial assistance programs, where wealthy
parents could take out low-interest federal loans for
their children and invest their own money in money
market funds, aid has been more precisely targeted to
the neediest. Families with annual incomes above
$30,000 are now required to demonstrate need for
guaranteed student loans, and grants are more carefully
directed to low-income students.
o In the 1984 budget, only 20% of the changes in 5 key
means-tested entitlement accounts (AFDC, SSI, medicaid,'
food stamps and child nutrition) can be regarded as
benefit reductions, in this effort to target funds more
carefully.
-- The remainding 80% reflects program efficiencies and an
attempt to reduce further the very high rate of errors
-- people getting more benefits than they are legally
entitled to.
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o But also have to also look beyond program changes to
overall economic effect.
-- What is fair about inflation?
* It robs everyone, particularly the elderly with fixed
incomes and the poor, of purchasing power.
* During 1970s, AFDC benefits increased by one-third,
but high inflation meant that AFDC families had 30%
less purchasing power.
-- What is fair about the unemployment that has risen as
the federal government has absorbed more of private
production?
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3. Why have only.programs for the poor been cut?
o Programs assisting the poor are called upon to bear only a
fair share of budget restraint.
-- These programs Lose most rapidly in the 1970s, jumping
2-1/2 times. in real terms.
-- Human resource programs comprise 85% of the,
non-defense, non-interest budget, and therefore, must be
the subject of a majority of the budget changes.
-- But reductions in budget growth in these programs have..
been designed to reduce or eliminate benefits to those
who do not deserve them, while preserving aid to the
needy.
-- Thus, reductions in program levels do not mean
reductions.in aid to the poor, but instead only a
restoration of programs to their intended purpose.
o The 1984 budget proposes significant savings in programs
other than'those that are intended to aid the poor.
-- $55 billion in savings in defense for 1984-1988.
-- Freeze on farm price supports.
-- No increase in government employees' pay.
-- Further reductions in subsidies for Amtrak and wasteful
and uneconomic energy projects.
o This follows upon several similar changes in the past two
years.
-- Cut in the postal subsidy, except for charitable and
other special groups.
-- Ending of direct government involvement, with budgetary
dollars, in synfuels..
-- Reduction in the dairy subsidy level for the first
time.
-- Reduction in "impact" education aid (much of which went
to wealthy communities) for the first time -- tried by
every previous President since Eisenhower.
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-- Ending of twice-a-year COLA indexing for federal and
military retirees.
-- Cutback in subsidies for Amtrak so passengers must now
cover half of the cost.
-- Reform of the wasteful sewage treatment grant program
to confine it to plants that actually clean up adjacent
waters, at a savings of more than $1 billion per year.
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4. But in a recession,, shouldn't;we,.pay. special attention
to the needs of the poor?
o We have paid special attention to. the needs..of the: poor.
-- The truly needy have been protected. Benefits to
households that participate;-in a single program and
have no other sources of support are largely
unaffected.
Targeting benefits more carefully to the needy has
helped poor beneficiaries. In spite of the difficult
economic situation, 22 states increased their AFDC
payment in 1982.
-- The unemployed have been protected. President Reagan
has three times su orted extension of unemployment
bene its during this recession.
-- The working, poor have not been discouraged from
working. Studies on AFDC in several states show that'
the number of working recipients who have quit their
jobs to retain their benefits is. very small -- about
10% (which itself may be overstated, since many of
those "quitting" actually lost their jobs).
o The FY 1984 budget, even under the domestic freeze,
reflects this concern for the poor.
-- 2.1 million people will be served in 1984 under the
Women, infants, and Children (WIC) program, or 12% more
than in the Carter 1980 budget -- and 82% more than in
!1978.
-- Head Start funding is up 6%, with 29,000 more slots
than in 1983.
-- SSI benefits for 3.4 million elderly, blind and
disabled will be increased by a total of $341 million
as a result of the Administration's proposed
legislation.
-- Nearly 4 million families will live in assisted housing
units supported.by the 1984 budget; this is 250,000
more families than in 1983, 650,000 more than in 1981,
and 3 million more than in 1970.
-- In the food stamps program (excluding Puerto Rico), 22
million-persons will receive average assistance of $462
per year, compared to 21.1 million recipients in 1980
and only 15.3 million beneficiaries in the 1975
recession.
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5. Doesn't the recession prove that Reaganomics has
failed?
o The recession statistically began in July 1981 -- three
months before the President's Economic Recovery Plan had
taken effect.
o The recession, in practical if not strictly economic
terms, was with us since 1979:
-- The unemployment rate had been trending steadily
higher, and averaged 7.1% from mid-1979 to the
beginning of 1982.
The monthly prime rate had not fallen below 10% since
1978, and between January 1979 and December 1981 it
averaged 15.6%.
Real output increased at only a 0.1% annual rate from
the first quarter of 1979 to the first quarter of 1982.
-- The level of industrial production declined 7.4%
between January 1979 and January 1982.
-- Real after-tax corporate profits declined 43% from the
first quarter of 1979 to the first quarter of 1982.
o In fact, this recession was an inevitable result of past
inflationary policies.
-- Sharp rises in unemployment have followed each burst of
inflation.
* From 1967 to 1970, the inflation rate more than
doubled, rising from below 3% to 5.9%; by 1971, the
unemployment rate had climbed to nearly 6%, rising
from about 3-1/2% in both 1968 and 1969.
* From 1972
to
1974,
the inflation rate more than
tripled,
from
3.3%
to 11.0%, and the unemployment
rate rose
the
next
year to 8.5%, rising from a
pre-recession
low
of 4.9% in 1973.
* From 1976 to 1979, the inflation rate doubled, rising
from 5.8% to 11.3%, and the unemployment rate climbed
the next year to a high of 7.1%, rising from a
1978-79 average of 6%.
The present situation is no different.
* From 1976 to 1980, the inflation rate more than
doubled from 5.8% to 13.5%.
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30
* The subsequent 'rise in uneniploymerit by one half from
7.2% to a peak of 10.8%, is,. in fact, somewhat less
than the average proportional rise for previous
postwar recessions-.
o Only way to permanently pull us
tax rate cuts in place an work
growth.-
out;of . rdceS8lol:, keep '
to' urther red;79e spending
only depress economy and slow
-- Failing to control spending growth would let th'e
federal government absorb more of scarce capital, thus
preventing business from expending. and the" ecorioiny. from
rebounding.
-- Higher tax rates, would
the recovery
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6. What is Reagan doing to help the unemployed?
o Promoting a policy of long-term economic growth -- the key
to getting Americans back to work.
-- Underlying strength of economy, even in recession, is
great enough to provide work for more than 99 million
Americans.
* This, despite fact that economy has been virtually
stagnant since 1979.
-- The President's forecast of moderate, sustained growth
(4.3% in 1983, 4% each year in 1984-1988) will raise
employment by more than 15 million by the end of 1988
-- and by 5.2 million just by the end of next year.
o For the short-term: a bipartisan bill with three major
provisions signed into law by thelPresident.'
-- $4.4 billion in accelerated funding of construction
projects already in the budget.
* Because the expenditures are already planned, total
federal spending over the next few years will not be
increased -- but the jobs will be provided now, when
they are needed.
* These will not be make-work jobs, but jobs in
projects previously determined to be necessary.
-- $2.8 billion for funding of supplementary unemployment
insurance benefits through the end of FY 1983.
-- $216 million for humanitarian assistance for the
unemployed.
o For the long-term: the President's Employment Act of 1983
and other employment initiatives.
-- Employment Act of 1983.
* Employment vouchers for long-term unemployed,
granting employers a tax credit for each new hire of
previously long-term unemployed workers. This
proposal could help up to 700,000 unemployed persons
get jobs.
* Youth employment opportunity wage ($2.50) for summer
work -- could open up additional 150,000 to 640,000
jobs.
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-- Initiatives to help young persons:
* Continued funding of the federal summer job's..progran,
expected to provide more than 800,0 00 jobs in 1983.
* Continued funding of the Job Corps, with good record
of training disadvantaged young people, will serve
another 80,000.
-- Training: The block grant for training under the
president's Job Training Partnership Act will provide
real skills for real jobs for at least one million
young and poor people each year.
-- Displaced workers: President has asked for 'a 'doubling
of amounts -for training and relocation assistance-, to
help almost 100,000 workers.
-- Enterprise zones: To stimulate economic activity -and
create jobs in depressed urban and rural areas.
-- In all, :more than 3 million people will be helped by
these current and proposed programs.
o Key steps already taken.
-- Passage, with the President's active support:, of Job
Training Partnership Act last year.
-- Three extensions of unemployment benefits.
-- Passage of Export Trading Company Act, expected to help
create 300,000 new private sector jobs.
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7. But why does the President oppose real jobs bills?
o The federal government cannot create jobs.
-- The federal government has no resources of its own; it
must take the money from the private sector through
either borrowing or taxes.
-- Thus the government destroys private jobs in its
process of "creating" public jobs; since federal jobs
are far more costly, the number of jobs lost is greater
than those generated.
-- Make-work jobs are especially wasteful, since they
produce little of value to society.
o History proves the federal government cannot create jobs.
-- The Works Progress Administration employed a total of 8
million people between 1935 and 1943, but put many to
"work" putting on plays and painting murals. In the
end, it took World War II to end the Great Depression.
-- The $6 billion Local Public Works program, intended to
ease the 1974-75 recession, did not peak until 1978,
three years after the bottom of the recession.
* A 1979 OMB study found that only 12% of the jobs
"created," and only 2% of the funding, went to
persons previously unemployed,
-- CETA program spent $57 billion over eight years, yet
only 30% of participants were ever placed in
unsubsidized jobs, and only half of these in private
sector jobs.
o Economic growth is far more effective.
-- Growth will create 5.2 million new jobs by the end of
next year.
-- By contrast, the "jobs bill" considered last December
would have "created" a mere 300,000 public jobs, while
destroying an even greater number of private sector
jobs.
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8. Hasn't Reagananics increased infant mortality?
o The assertion is absolutely, totally, and completely
false.
o The infant mortality rate continues to decline.
-- The rate dropped from 2.0 per thousand in 1970 to 12.6
per thousand in 1980 = -major, welcome, sound progress.
-- In 1981, it dropped further -- to 11.8.
-- And in 1982, it dropped once again -- to 11.2 -- a
decline of 4%.
-- For decades, infant mortality has been declining for a
number of reasons, such as better health care, improved
nutrition and higher living standards. Only recently.
have federal programs like the Women, Infants and
Children (WIC) program contributed to this
long-standing trend.
o Charges that the infant mortality rate (IMR) is increasing
are based on a misinterpretation of the data.
-- It is true that a popular survey reported that 7 states
experienced increases in IMR in 1981.
* But from 1970-1980, when the national IMR fell 38%,
an average of 12 states each year showed an increase.
* And they were different states each year -- every
state showed a decline over the decade.
* Increases in some states in 1981 therefore reflect
,normal statistical variation.
-- It is true that some cities experienced increases in
IMR in 1981.
The "Food Research and Action Center" survey is based
on data from 34 cities and rural counties out of
total of 3800 U.S. cities and counties -- far too
`small a sample to be reliable.
*'Percentage increases are wildly distorted.
Lackawanna, New York's, 50% increase in IMR
represented a rise of just 3 infant deaths.
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- In Youngstown, Ohio and Galveston, Texas, the
numbers of infant deaths was constant, but there
were fewer births, so the mortality rate rose.
-- There is no evidence that these statistically
insignificant changes were correlated with poverty or
any other cause.
* Of the 10 metropolitan areas with the highest
unemployment rates, six reported declines or no
change in infant mortality rates from 1980 to 1981.
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9. Shouldn't we eliminate the third year of the 1981 tax
rate cut, as well as indexing, in order to add a
measure of fairness to the President's economic
policies.
o Even with the President's tax reduction proposal in place,
taxes will rise an average of $36 per year (from 1980 to
1988) for a family earning $10,000 per year. Note: the
average tax increase for a $40,000 family will be $340, or
nine times as great.)
o The third year and indexing are the only real hope for the
lower- and middle-income families.
-- More than 40% of these families' tax cuts come in the
third year, compared to 5% for the wealthy.
-- Indexing keeps low- and middle-income families from
being pushed into higher tax brackets because of
inflation; because the wealthy are already in the top
tax bracket, indexing is of no real consequence to
them.
o Eliminating both the third year of the tax rate cut and
indexing would boost taxes even more on low- and
middle-income families.
-- The annual increase in taxes would be $316 in 1988 for
a $10,000 per year family, and $2423 in 1988 for a
middle-income ($40,000) family.
-- The only families who would not be affected very much
by repealing the third year of the tax cut would be
those with six-figure incomes, who already received
their major tax benefits from the reduction of the top
bracket from 70 to 50 percent.
* For instance, 78% of the tax increase from repealing
indexing would fall on those earning less than
$50,000.
o Eliminating the third year of the tax rate cut and/or
indexing would also increase the economy's tax burden.
-- This would slow down the economy, as tax increases have
done in the past, and thus:
-- Make it more difficult for unemployed low- and
middle-income Americans to find a job, or for those who
are underemployed to move up the income ladder and
escape poverty.
* Example: From 1959-1969, the number of families
living in poverty dropped nearly 50%; from 1969-79,
when the economy was growing more slowly, the number
of poor families dropped only 6%.
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10. But indexing is such an enormous raid on the Treasury.
Shouldn't it be repealed in order to preserve the tax
base, or at least be postponed until the budget is
balanced?
o The notion that indexing is a "raid on the Treasury" rests
on two false premises:
-- That all income produced belongs to the government, and
the people are entitled to only what the government
lets them keep.
-- That the government should raise revenue by any means
possible.
o In fact, raising taxes through inflation, which indexing
will prevent, is a dishonest means of raising taxes.
-- At present, when taxpayers receive cost-of-living
increases that just keep them even with inflation, they
are forced into higher tax brackets, and pay higher tax
rates on the same real income.
-- Government thus profits from inflation; for every 10%
increase in income, government gets 17% more in
receipts.
-- In this way, politicians receive increased taxes to
spend, year-after-year, without ever having to
explicitly vote for those tax increases -- politicians
are not held accountable.
-- Politicians can also win voter favor by voting
so-called "tax cuts" that are actually only reductions
in the growth of taxes, and fail to offset
inflation-induced tax increases.
o The repeal or postponement of indexing would have several
harmful economic consequences.
-- It would greatly increase the economy's tax burden --
by $44 billion in 1988 at presently projected inflation
rates, by more than $100 billion with double-digit
inflation -- and thus push the economy back toward
recession.
-- It would encourage inflation. Since inflation-induced
revenues are greater with higher inflation, politicians
would be less inclined to maintain strict
anti-inflation policies if they knew higher inflation
would bring them political benefits, including more
revenues to spend and to use for periodic "tax cuts."
-- It would encourage increased federal spending. With
the revenue reins once again loosened, Congress could
easily return to its free-spending policies of the
past.
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-- It would undermine the economic recovery. Repeal or
delay of indexing would send a clear signal to the
financial markets that inflation and unchecked spending
were coming back. With that, interest rates would
rise, investment and production would sag, and the
recovery would be aborted.
-- It would make it-impossible to balance the budget. The
higher.spending and sluggish economy would guarantee
that deficits would increase.
-- These are some of the reasons why President Reagan has
pledged to veto any attempt to repeal indexing or
postpone its starting date.
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11. Why is the defense budget exempt from budget cuts?
o Defense has not been exempt from cuts.
-- Since last year, the President's defense program has
been reduced by more than $74 billion:
* Congress cut $19.1 billion in 1983.
* The President trimmed $55 billion in his revised
1984-88 defense program.
-- The originally planned increase in defense spending
above the last Carter five-year plan (1982-86), judged
inadequate by all, has been reduced by $66 billion, or
by more than one-half (57%).
-- Real defense growth will average only 6.6% for 1984-88.
o What increases remain merely compensate for a decade of
neglect.
-- From 1970 to 1981, national defense spending declined
15.2% in real terms, while non-defense spending almost
doubled in real terms.
-- By 1988, national defense will rise to only 7.9% of
GNP, still below the pre-Vietnam 1964 level of 8.3%,
but substantially above the 1978-79 low of 5% of GNP.
-- By 1988, national defense will comprise 34.2% of total
budget outlays, still below the pre-Vietnam 1964 level
of 43.5%, but substantially above the 1980 low of 23.6%
of outlays.
o These increases are necessary.
-- From 1970 to 1981, the Soviets out-invested the U.S. in
defense by about half a trillion dollars in constant
1984 dollars.
-- In 1981, the Soviets out-invested the U.S. by about
two-thirds.
-- Even with the President's new 1984-88 Five-Year Defense
Plan, the Soviets will continue to out-invest the U.S.
by a substantial margin.
* U.S. tank production will equal less than 40% of
estimated Soviet production.
* U.S. combat aircraft production will equal less than
50% of estimated Soviet production.
* U.S. major surface ship construction will equal about
one-third of Soviet construction.
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12. Isn't the Democratic budget a more compassionate
alternative for achieving the President's objective of
economic recovery and budget control?
o The Democratic House Budget Committee voted out a budget
plan for fiscal 1984 and beyond that would undo the gains
made by President Reagan in the last two years.
-- From 1984-88, this plan would:
* Raise taxes by $315 billion;
* Raise non-defense spending $192 billion (excluding
interest ;
* Cut defense spending $160 billion ($208 billion in
spending authority).
-- Passage of such a budget would reverse the progress
president Reagan has made in restraining the.growth of
government spending and taxing.
It would undermine economic recovery just as it gets
underway by raising taxes and starting a new round of
virtually uncontrolled federal domestic spending.
-- It would send all the wrong signals to allies and
potential adversaries about the strength of American
resolve to rebuild its military capacity.
-- It is what the Washington Post called an "old-fashioned
Democratic budget." It would.raise taxes and cut
needed defense modernization funds and use most of the
money to pay for a new surge in domestic social
spending.
o The Democratic budget is a bad tax plan.
-- It would require cancellation of the third year of the
tax rate cut and of indexing -- raising taxes for
families earning under $50,000 by about $200. billion by
1988.
-- It would cost the typical family an average of $3550 in
higher taxes through 1988.
-- It would repeal 42 percent of the tax savings secured
by President Reagan.
-- It is nothing more than an effort to take and spend
more of people's money -- just the opposite of what the
President has been trying to do.
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o The Democratic budget is a bad social spending plan.
-- Non-defense spending next year would be $40 billion
more, than the bloated levels of the Carter
Administration's 1981 budget.
-- This liberal Democratic budget plan would eliminate
most of the gains 'made in the last two years in
bringing spending under control.
* Hard-won reforms in social programs have made it
possible to limit their budget growth without hurting
those who really need the benefits.
* The Democratic budget ignores those reforms and
returns to throwing dollars at problems.
* For example: it would repeal nearly $5 billion in
food stamp and welfare reforms and refuses even to
consider Administration initiatives to reduce food
stamp error rates despite documented evidence that
food stamp fraud and abuse costs nearly $1 billion
per year.
o The Democratic budget is a bad defense plan.
-- The budget would gut the President's program to rebuild
U.S. defenses and, according to the Congressional
Budget Office, allow only about 3 percent real growth
in the defense program over the next five years -- far
from enough to make up for a decade and more of past
neglect.
-- Because much defense spending is already locked in
place -- for pay and retirement operations and
maintenance, and the like (including critical readiness
programs) -- the effect of the Democratic leaders'
proposed cuts would be a one-third reduction in weapons
modernization.
* An average $40 billion a year reduction in defense
programs would cut into the bone of some of the
United States' most important defense initiatives.
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PURPOSES-OF BUDGET EXPENDITURES
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BUDGET PRIORITIES SHIFT IN HISTORICAL-
PERSPECTIVE
(CONSTANT FY 1983 DOLLARS)
3.7%IYEAR
1970-1988
1.7%1YEAR
11070-1961
DEFENSE AND SECURITY
SPENDING
NON-DEFENSE SPENDING
01 I I I I I I I I I I I I I I I I I I
1970 1971 1972 1973 1974 1976 1976 1977 1978 1979 1980 1981 1982 1983 1984 1986 1966 1917 1968
MILITARY RETIRED PAY INCLUDED IN NON-DEFENSE SPENDING
NONDEFENSE SPENDING EXCLUDES NET INTEREST
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AID TO FAMILIES WITH DEPENDENT CHILDREN
History.
Aid to Dependent Children (ADC) was first authorized
under the Social Security Act of 1935. It made federal
funds available to states to help support needy children
deprived of normal parental support because of the parent's
death, incapacity or absence from the home. Payments were
made for the support of the child, not for the person caring
for the child.
In 1950, Congress authorized ADC payments not only to
needy children but also to the adult caring for the child.
In 1962, congress authorized payments even if both parents
were present but were unemployed, and the program was
renamed Aid to Families with Dependent Children (AFDC).
o The program.
-- In order to qualify for AFDC, some adult recipients
must enroll in a job-training program. While in the
program, participants have the option of placing their
small children in day care centers or leaving them in
the care of friends, relatives, or neighbors.
-- Benefit levels are determined by each state, with the
federal government paying 50 to 77% of the costs of
benefits and 50% of the cost of state and local
administration.. With the exception of California,
benefit levels are not indexed to the inflation rate.
o Coverage.
-- In 1950, 651,000 families received ADC benefits. By
1980, 3,642,000 families were receiving AFDC benefits,
representing a nearly six-fold increase in the number
of recipients in just thirty years.
-- In 1960, the average monthly benefit was $115 per
family; in 1980 it was $276.
-- In 1980, benefits ranged from $140 for a family of four
in Texas to $569 in Oregon.
-- It took 25 years -- from 1935 to 1960 -- for AFDC to
reach the billion-dollar expenditure level.
-- By 1967 -- only seven years later -- the cost of the
program had doubled to $2.3 billion, and in 1968 alone,
benefit costs rose by another half-billion.
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-- By 1980, the program had reached $11.3 billion in
combined state and federal costs for benefits, and in
FY 1982 it cost $11.9 billion.
o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed:
- $7.7 billion in outlays, including $0.5 billion in
net savings.
- Standardized disregards and monthly retrospective
accounting to improve program administration.
* President Reagan proposed:
$6.8 billion in outlays, including $1.2 billion in
savings.
- Comprehensive program to restore AFDC to original
purpose as temporary safety net. Included Carter
proposals plus time limits on earnings disregards,
more comprehensive and effective work requirements,
and many other overdue changes.
- More equitable balancing of federal state child
support financing arrangements, and related reforms
to increase collections from absent parents.
* Congress approved:
- $8.0 billion in outlays (increase due to change in
economic conditions).
- 90% of President Reagan's AFDC/CSE reform package,
totalling nearly $2 billion in annual federal state
savings.
-- For FY 1983:
* President Reagan proposed:
- $6.8 billion in outlays, including $1.4 billion in
savings.
- Further reforms designed to more fully count income
and resources available to the AFDC family, tougher
work requirements, phase-in of state liability for
erroneous payments, and consolidation of
administrative costs for AFDC, Food Stamps, and
Medicaid.
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- Comprehensive restructuring of child support
enforcement financing arrangements, designed to
strengthen family responsibility and reduce welfare
dependency.
* Congress approved:,
- $8.2 billion in outlays (increase due to rejection
of legislative proposals and change in economic
conditions).
- Modest changes in AFDC eligibility rules, increased
state liability for erroneous payments, and
selected child support improvements.
-- Specific reforms.
* Over the past two years, the President has proposed,
and Congress enacted, a variety of long-overdue
changes in AFDC. These changes were, designed to help
ease severe budget constraints facing all levels of
government, and to restore AFDC as a program of last
resort for those who must rely on it for limited time
periods.
* Among the key changes:
Including income and resources available to a
family but not previously counted by AFDC. For
example, the income of step-parents living in the
same household as the AFDC family is now counted.
- Targeting assistance on those in greatest need.
Gross income eligibility limits and other benefit
caps have been enacted.
- Strengthening work requirements and enhancing the
employability of AFDC recipients. States may now
establish Community Work Experience programs, in
which recipients receive training and work
experience while performing useful public tasks.
- Improving program administration. Stricter
accounting procedures have been introduced, and
recovery of all overpayments has been made
mandatory.
* These changes have resulted in more than $2 billion
in annual federal and state AFDC savings, and have
substantially restored AFDC to its originally
intended purpose.
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The President's Proposals for FY 1984.
o Require the states to establish workfare programs to
assure that the AFDC recipients perform useful tasks in
the public sector when private sector jobs are
unavailable, and to provide recipients with work
experience that can help them ultimately find jobs in the
private sector.
o End employable parent's benefit when youngest child
reaches 16.
o Correspondingly reduce estimated shelter and utility costs
in calculation of assistance needs for AFDC families to
the extent that these costs are shared with other people
who live in the' same household as the AFDC family.
o Include all sources of income (such as that of parents and
minor children), available to AFDC recipients when
determining the amount of benefits to be paid.
o Eliminate AFDC support for those families who are
receiving help solely because the breadwinner's occupation
requires that he or she live and work away from the home
for certain periods of time.
o Permit states to require AFDC recipients whose youngest
child is age 3 to 6 to register for work if child care is
available.
o Require states to adopt and enforce better child support
laws and procedures, including mandatory wage assignments,
state income tax refund offsets, and use of quasi-judicial
and administrative procedures for establishing paternity
and support orders.
o Restructure federal matching payments for child support
enforcement collections to provide incentives for improved
state and local collection performance.
o Seek no further funding of the work incentives program,
(WIN).
Justification (General).
o These changes would ensure that federal resources are
targeted on the neediest, and that individuals and
families who are able to support themselves do not
continue to rely on public assistance.
o These changes would save federal taxpayers an estimated
$732 million in FY 1984, and $4.5 billion over the next
five years.
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o The states will save an additional amount equal to about
85% of the federal savings, or $600 million in FY 1984,
and $3.8 billion over the next five years.
Justification (Specific).
o Requiring workfare.
-- Those who are able to work should be required to do so,
and should not expect to receive aid if they refuse to
help themselves by accepting work.
-- Workfare better enables welfare recipients to
eventually find work in the private sector by giving
them actual work experience, a chance to develop good
work habits, and useful training.
-- States now have the option to establish Community Work
Experience programs CWEP and mandatory job search
requirements, but only half the states have done so,
even on a limited basis.
o Ending employable parent's benefits when the youngest
child reaches age 16.
-- Since the parent's presence in the home is no longer
essential once the child reaches age 16, the employable
adult should be expected to seed work rather than
relying on public assistance.
-- The child's benefits would not be affected.
o Prorate shelter and utility costs among all persons living
together in housing unit.
-- Resources of all persons living together in a housing
unit are available to meet the household's living
expenses, and should be taken into account in
calculating assistance needs.
-- For example, an unemployed mother with small children
may live in her parents' home -- in which case she does
not have the same need for housing assistance as a
woman in similar circumstances who must rent an
apartment.
o Include all resources available to recipients.
-- At present, the AFDC recipient family has the option of
excluding certain of its resources (the earnings of a
minor child for example) when calculating its income
for the purposes of determining AFDC eligibility.
-- These resources are available to help defray living
expenses, and should be used toward that end.
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-- Counting the resources of all family members would
ensure equitable treatment for families with similar
needs.
-- Individuals with separate supplemental security income
(SSI) would continue to be excluded from the family,
for purposes of eligibility determination.
o Absence from home.
-- Welfare benefits should be focused on families that are
unable to provide for themselves.
-- Currently, some families qualify solely because a
parent is away from home due to job search or
work-related activities, even though family ties and
financial support continue.
-- Benefits in these cases are inappropriate, and should
be discontinued.
o Mothers with small children.
-- AFDC recipients should seek employment as soon as
possible to help avoid long-term welfare dependency.
-- Available evidence indicates that mothers of small
children can register for work if child-care services
are available.
o Child support.
-- Nine out of ten AFDC recipients have an absent parent
who ought to be providing support. Yet only one-third
of AFDC recipients are covered by court orders for
support, and in half these cases few or no payments are
actually made.
-- The taxpayer unfairly bears the cost when these parents
abandon financial responsibility for their children.
-- The child support enforcement system is now less
effective than it should be.
* Many states have lax enforcement procedures.
* Marginal state performance is currently rewarded.
States need only collect 48c for each $1 of
administrative costs to "break even" from their
perspective because, under current law, states 2aZ
only about 30% of child support enforcement costs,
but retain more than 60% of collections.
-- By requiring states to adopt effective child-support
laws, and promoting active state collection efforts,
support for children will be increased.
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o Terminate funding for the work incentives program (WIN).
-- New work opportunities for welfare recipients created
in the Omnibus Budget Reconciliation Act of 1981,
including Community Work Experience Programs and Work
Supplementation programs, combined with similar reforms
proposed in the FY 1984 budget, make WIN unnecessary.
-- WIN has riot proven to be successful in quickly moving
AFDC recipients to permanent, private sector jobs.
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Question & Answers.
o Denying assistance to the truly needy. Won't the truly
needy be discouraged from seeking assistance as a result
of the Reagan proposals?
-- The truly needy would still be able to collect their
AFDC benefits under the Reagan proposals.
-- That the Administration's proposals would do is
encourage recipients to look for work before applying
for welfare benefits by requiring them to seek out
private job prospects before becoming a recipient.
-- This should not be seen as an effort to dissuade truly
needy individuals from seeking assistance, but rather
as an incentive toward their becoming part of the
workforce.
-- In fact, targeting benefits to reduce excessive costs
seems to have positive results for poor beneficiaries.
In spite of recent economic difficulties, 22 states
increased their AFDC payment standards in 1982.
o Driving the working poor onto the welfare rolls. Won't
these budget savings be cancelled out if the working poor
quit their jobs in order to keep the benefits they have
been receiving?
-- Almost all the evidence to date shows that the number
of recipients who have quit their jobs is very low.
*?Studies in Massachusetts, New Jersey, Vermont,
Illinois, Michigan, New Mexico, and Los Angeles
County all suggest that only about 10% of all
families who left the rolls have returned, often
because they had lost their jobs or had their hours
of work reduced involuntarily.
* Only a negligible number of recipients have
voluntarily quit their jobs.
-- In almost all cases, the poor are financially better
off -- from 60% to 150% better off -- by working than
they would be if they quit their jobs.
-- Besides, the Reagan proposal requires employable adults
to seek work in order to continue receiving their
benefits; quitting work merely to receive benefits
would not be an allowable option under the proposal.
o Working for benefits. Isn't it unfair to force AFDC
recipients to work for their benefits?
-- If they are able to work, then it is only fair that
they do so in order to receive benefits.
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-- It is particularly unfair to tax low-income Americans
to support beneficiaries able to work but refusing to
do so.
o Families living together. If economic conditions force
two families to share an apartment, why should AFDC
benefits be reduced?
-- It two families are sharing an apartment, both should
be required to contribute to their combined living
expenses.
-- Their living expenses are also proportionately less,
because of economies in sharing quarters.
-- AFDC benefits should be provided only to the extent of
need; it is better to target aid to those who are
unable to meet their living expenses through any
arrangement.
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CHILD HEALTH CARE
History
Federal efforts to provide for the health and
well-being of children extend back to the New Deal period.
Current efforts in this area are concentrated in two
programs: Child Immunization, established in 1963 and
Women, Infants and Children, established in 1974.
o Programs.
-- Women, Infants and Children (WIC) nutrition program.
* This program provides supplemental nutrition
assistance to pregnant women, nursing mothers, their
babies and young children.
* From a cost of about $14 million in 1974, the program
has grown to a cost of nearly $930 million in FY 1982
-- an increase of nearly seven times.
* WIC presently serves 2.2 million women and their
infants and children.
* To be eligible, family's income must be below 185% of
the poverty line.
Child Immunization program.
* This program began in 1963 to immunize children
against childhood diseases.
* In 1981, 6.3 million children were vaccinated under
this program.
o Administration Action to Date (WIC).
-- For FY 1982:
* President Carter had proposed budget authority of
$1.1 billion.
* President Reagan proposed budget authority of $725
million.
* Congress approved budget authority of $934 million.
-- For FY 1983:
* President Reagan proposed:
- Budget authority of $730 million (implicit share
for WIC in a proposed block grant). WIC budget
amendment was transmitted in August for $1.1
billion.
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- Programmatic reforms: Consolidating WIC into an
expanded HHS Maternal and Child Health Block Grant.
* Congress approved:
- Budget authority of $1.1 billion.
- No programmatic reforms.
o Administration Action to Date (Child Immunization
program).
-- For FY 1982:
* President Carter had proposed:
- $37 million.
- Request designed to sustain childhood immunization
program.
* President Reagan proposed:
- $18 million.
- Request designed to enable states to maintain their
high immunization levels for most childhood
diseases and control the spread of measles.
* Congress approved:
- $28 million.
-- For FY 1983:
* President Reagan proposed:
- $29 million.
- Request reflected success of efforts since 1977 to
achieve a nationwide catch-up in raising
immunization levels. Successful completion of
federal/state/local catch-up efforts -- which had
targeted a 90% immunization goal -- allowed federal
support to level off in 1983 and focus on
supplementing state efforts to cover the
approximately 3.5 - 4.0 million children born each
year, as well as boosters for the existing
population.
* Congress approved:
- $39 million.
- Final FY 1983 level primarily relected the need to
offset 40% vaccine price increase during FY 1982,
in order to maintain current immunization levels.
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The President's Proposals for FY 1984.
o For WIC:
-- Fund WIC in FY 1984 at the FY 1983 level of $1.1
billion.
o For Child Immunization:
-- Increase funding levels for FY 1984 to $41.8 million.
Justification.
o For WIC:
-- WIC has grown explosively since its inception. As a
result, the program has suffered from poor management
and abuse. A stabilization period would encourage
greater economy and administrative reforms.
o For Child Immunization:
-- The major catch up vaccination effort begun in 1977 has
now largely succeeded and been completed; 96% of all
children at school entry are now vaccinated.
-- The remaining task is to vaccinate children for the
first time. The number of children reaching school age
each year is approximately 3.5 to 4.0 million; the
budget provides for this many.
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Questions and Answers.
o Is the WIC budget adequate? When inflation is taken into
account, funding WIC at last year's level is the same as
cutting the program. How can this be justified when
unemployment is high and the number of eligible needy
persons is bound to be greater?
-- The proposed level of budget authority would support a
WIC caseload of more than 2.1 million recipients -- a
level 12% higher than the caseload in the last year of
the Carter Administration (when the unemployment rate
was only about 3% lower than it presently is), and a
level 82% higher than in 1978.
-- WIC unit costs can be reduced through program
efficiencies. For example, states could substitute
less expensive but equally nutritious foods in the WIC
food package.
o Infant mortality. How can present efforts in this area be
considered sufficient when infant mortaility is once more
on the rise in this country?
-- The infant mortality rate (IMR) is not on the rise. On
the contrary it is continuing to decline.
* The IMR dropped from 20per thousand in 1979 to 12.5
per thousand in 1980.
* In 1981 it dropped further -- to 11.7.
* And in 1982 it dropped again -- to 11.2.
-- News reports contending that the IMR is on the rise are
incorrect.
* These reports were based on press release by a group
called the Food Research and Action Center (FRAC).
* The FRAC analysis is flawed in several respects.
- FRAC cited seven states that experienced increases
in IMR in 1981. But in the 1970s, when the
national rate dropped every year, the rate rose in
an average of twelve states each year. Thus, the
FRAC "evidence" is nothing but a normal statistical'
fluctuation.
- FRAC also conducted a telephone poll in which it
established that IMR had risen in 34 cities. But
there are at least 3,800 cities and counties
equivalent to the FRAC list in the U.S., so 34 --
or eight-tenths of one percent -- is hardly a
reliable sample.
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- FRAC failed to establish the alleged link between
IMR and the recession; of the ten metropolitan
areas with the highest unemployment rates,
six reported declines or no change in IMR from 1980
to 1981.
o Hospitalization savings. It has been documented that $1
spent on the prenatal component of WIC saves $3 in
hospitalization costs due to decreased need to hospitalize
infants after birth. Using the guide, couldn't any
proposed "savings" from keeping spending level actually
end up costing far more in hospital costs?
-- Services rendered, not just dollars spent, determines
future hospitalization cost savings.
-- The proposed budget would serve 12% more women than in
FY 1980.
o Childhood diseases. Why is the Administration proposing
to reduce the number of children being vaccinated from
1981 to 1984? Won't this increase the spread of childhood
diseases, especially among the poor?
-- The child immunization program has succeeded in
vaccinating 96% of the children at school entry in
America from disease.
-- The remaining task is to vaccinate the 3.5 to 4.0
million children who come into the population next
year, and the proposed budget fully provides for that.
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History.
The federal government began donating surplus food for
use in elementary and secondary school lunch programs in
1936. Since that time, child nutrition programs have
evolved to the point where these are now five federally
supported programs. In addition, children receive nutrition
assistance through the Food Stamp and WIC programs, with
estimated benefits of $5.2 billion and $706 million,
respectively.
o Programs.
-- School Lunch.
* By far the most significant and extensive child
nutrition program. Schools participating in the
,program are required to operate it on a non-profit
basis, and serve free or "reduced price" lunches to
needy children. In return, the federal government
makes cash payments and provides commodity assistance
to the schools.
* In 1950, 7.8 million school children participated in
the program. That number rose to 22 million in 1970,
and to 27 million in 1980.
* Currently there is a three-tier price system for
lunches:
- Paid lunches are available to children from
families whose incomes are 185% of poverty and
above (50% of all participants), who must pay 82%
of the cost of the meals.
- Reduced price meals are available to children from
families with incomes between 130% and 185% of
poverty (about 7% of the participants , with the
government paying approximately two-thirds of the
cost of the meals.
- Free (totally subsidized) lunches are available to
children from families with incomes below 130% of
poverty (about 43% of participants).
* In 1966 Congress established a pilot school breakfast
program for schools with a high percentage of needy
students who traveled long distances to school.
* In 1975 the program was made permanent and now
provides paid, reduced price and free breakfasts to
3.4 million students.
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-- Special Milk Program.
* This program was established in 1954 to help clear
surplus milk from the market through government
purchase and donation to schools.
* The program now subsidizes the cost of milk to
schools that do not participate in other federally
subsidized meal programs.
* Currently, more than 1 million students receive milk
subsidies under this program.
-- Summer Food Service Program.
* Established in 1969 for summer school students
attending public schools, this program fully
subsidizes meals and supplements for students in
program areas where 50% or more of the children
qualify for free or reduced price lunches.
-- Child Care Feeding Program (CCFP).
* Established in 1975, this program subsidizes the
feeding costs of children at day care centers, family
day care homes, and outside school hours centers.
* The program currently serves more than 1 million
children.
-- School Lunch Program:
* In 1950, the school lunch program cost the federal
government $120 million.
By 1970, the program cost
had more than doubled to
$300 million and by 1980 it
had increased almost eigh
t times to $2.3 billion.
* Average federal meal costs in constant dollars-rose
from 314 in 1970 to 604 in 1981. During the same
period, average student payments dropped from 600 to
340.
-- Other Programs:
Cost 1965
Cost 1975
Cost 1980
School
Breakfast .......
-0-
$ 86 m.
$288 m.
Special
Milk Program ...
$98 m.
124 m.
157 m.
Summer
Feeding Program
-0-
50 m.
121 m.
CCFP ................... -0-
46 m.
216 m.
Total ............. $98 m.
$306 m.
$782 m.
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o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed:
- Budget authority of $3.9 billion.
- Programmatic reforms: Reducing the income
eligibility standard for reduced-price meals;
eliminating for-profit Title XX child care centers
from the Child Care Feeding program.
* President Reagan proposed:
- Budget authority of $2.8 billion.
- Programmatic reforms: Eliminating meal subsidies
to non-needy children (above 185% of poverty);
discontinuing non-essential nutrition education
programs, non-essential equipment assistance, and
the Summer Feeding program; limiting the Special
Milk program to schools not participating in any
other nutrition assistance program; and lowering
income eligibility standards for reduced-price
meals.
* Congress approved?
Budget authority of $2.8 billion.
Programmatic reforms:' Reducing subsidies to
non-needy children; Administration proposals for
equipment assistance, income eligibility standards
and the Special Milk program; limiting the Summer
Feeding program to government sponsors in
low-income areas; and verifying the eligibility of
those receiving special meal subsidies.
-- For FY 1983:
* President Reagan proposed:
- Budget authority of $2.9 billion.
- Programmatic reforms: Consolidating the School
Breakfast and Child Care Feeding programs into a
general nutrition assistance grant to states;
discontinuing Summer Feeding and Special Milk
programs.
* Congress approved:
- Budget authority of $3.2 billion.
- No programmatic reforms.
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The President's Proposals for FY 1984.
o Consolidate the school breakfast, child care feeding, and
summer feeding programs into a nutrition assistance grant
to the states.
o Determine eligibility for free and reduced price school
meals at food stamp offices instead of schools.
o freeze cost-of-living adjustments (COLAs) to meal
reimbursement rates (i.e. the rates at which the federal
government compensates the schools for providing
subsidized lunches) for six months.
o Adjust reimbursement rates for all types of meals by the
same COLA.
o Discontinue federal mini-grants for nutrition education
programs.
Justification (General).
o These reforms will enable the Admnistration to save an
estimated $297 million in FY 1984, while preserving
benefits to the truly needy.
Justification (Specific).
o Program consolidation.
-- The nutrition assistance grant would give the states
more flexibility to design assistance programs for
meals served to children outside a school lunch
setting.
* States would no longer have to apply a complex set of
reimbursement rates or comply with 100 pages of
federal regulations.
* They would therefore be free to establish programs
targeted to particular local needs.
o Eligibility determination.
-- Schools would no longer have to determine which
children were eligible for free or reduced-price meals.
* Determining eligibility is an unfamiliar task to most
school administrators.
* It'is also one for which they receive no
compensation.
-- On the other hand, food stamp offices already have
trained staff people, and would be paid for any
expenses incurred.
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-- As a result:
* Eligibility would be determined quickly and fairly.
* School administrators would be free to devote more
time to education, and less to federal paperwork.
* Benefits would be assured of going to those who need
them most.
- This is not a minor concern, since the USDA
Inspector General has estimated that nearly $500
million may have been overclaimed in the school
lunch program in 1980 due to (1) invalid
applications, (2) inflated meal counts, and (3)
lack of income verification.
- Better efforts to verify the incomes of parents
applying for free or reduced-price meals for their
children would be an important step in curbing
fraud and abuse.
o COLA freeze.
-- The proposal is part of a government-wide effort to
contain escalating costs in entitlement programs.
-- Benefit levels would be preserved; the only difference
would be that schools would receive higher
reimbursement rates in January instead of in July.
-- Additional subsidies to schools in needy areas would be
maintained.
o Adjust reimbursement rates.
-- At the present time, cost-of-living adjustments to
reduced-price meal rates substantially overcompensate
for inflation.
-- This proposal would adjust all meal rates, including
those for reduced-priced meals, by the same inflation
factor.
o Discontinue nutrition education program assistance.
-- The Nutrition Education and Training Program was
designed to help the states develop nutrition education
programs for local school districts.
-- Because of past federal assistance, these programs are
now well-established, and federal start-up aid is no
longer needed.
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Questions and Answers.
o Program cuts under the guise of consolidation. Why is the
funding level for the nutrition assistance grant reduced?
-- The grant is funded at 85% of..FY?.1,984 curren't''sezvic s
for the three programs it"would replace, minus funding
for family day-care homes.
-- Savings can be_aghieved_by addressing problems in
current programs..
'or :exaitipl a family day-care homes receive generous
meal reimbursement regardless of the income level of
children served.
-- Savings would also result from the elimination of
federal red tape.
o Loss of benefits. How many recipients will lose benefits
if the Administration's proposals are put into effect?
-- No one who is entitled to these benefits will lose any.
-- The only ones who will lose anything under these
proposals are those who are presently collecting
benefits to which they are not entitled under the
federal law.
o Will the states do the job? How can you assume that the
states would provide the needed nutritional assistance
under a grant system?
-- There is no good reason to suppose that they would not.
-- The funding will come from the federal government, and
the states will get the funding only if they actually
provide the assistance.
-- States and localities are closer to education-related
problems, and historically have been more responsive
than the federal government to local needs.
-- States and localities can more effectively target these
resources according to individual needs.
-- Use of grants would reduce administrative burdens by
eliminating 100 pages of federal regulations, thereby
leaving more money for genuine nutritional assistance.
-- Furthermore, school administrators would no longer be
forced to double as caseworkers.
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o Eligibility determination at food stamp offices. Wouldn't
shifting the job of determining eligibility for school
meals overburden the food stamp offices?
-- Food stamp offices would not be heavily burdened.
-- 60% of those applying for free and reduced-price
lunches also receive food stamps.
-- Since the income limits for free lunches and food
stamps are identical, these applicants can demonstrate
eligibility simply by producing evidence of current
participation in the food stamp program.
o COLA freeze. Won't the six-month freeze in cost-of-living
adjustments for meal reimbursement rates cause unnecessary
administrative complexity?
-- Schools would receive two reimbursement rates over the
course of the school year.
-- Formerly (until 1981), two reimbursement rates (in
January and July) were standard policy, and did not
cause any difficulty for local food service operations.
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ELEMENTARY, SECONDARY AND VOCATIONAL
EDUCATION AID
History.
Traditionally, public education has been supported
primarily by state and local funds. In 1920, the federal
government contributed only .03% to the cost of all public
education. During the late 1950s, the federal role in
public eduction began to grow, and today 8.1% of all money
spent on public elementary and secondary education comes
from the federal government.
o Programs.
Federal aid to elementary, secondary and vocational
education falls into five major program areas:
-- Impact Aid.
* Provides direct federal aid to school districts where
parents either work for the federal government or
live on federal property or Indian lands, or both.
-- Aid to Disadvantaged Students.
* Provides aid to states and school districts to
support compensatory services for educationally
disadvantaged children.
* Provides federal grants for educational programs for
Indian children and adults.
-- Vocational and Adult Education.
* Programs assist youth in preparing for careers and
adults who are in need of training or retraining.
-- Aid to Handicapped Children.
* Provides federal funds to help states and localities
educate handicapped children.
-- In 1962, the federal government spent $448 million on
aid to elementary, secondary and vocational education.
-- By 1980, outlays for such aid had risen to $6.7
billion, representing a 14-fold increase.
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o Coverage.
-- Impact Aid.
* Provides aid to approximately 2,000 school districts.
-- Aid to Disadvantaged Students.
* Serves 4.5-5.5 million children.
-- Indian Education.
* The Education Department program serves abou.t..325,.0Q0
Indian childreri'and about 11,000 Indian adults.
-- Vocational and Adult Education.
* In 1982, served about 18 million individuals
(includes state and local support).
-- Aid to Handicapped Children.
* Serves 4.0 million children.
o Administration Action to Date.
-- For 1982:
* President Carter requested $7.5 billion.
* President Reagan requested $5.2 billion.
* Congress approved $6.3 billion.
-- For 1983:
* President Reagan requested $4.3 billion.
* Congress approved $6.7 billion.
The President's Proposals for FY 1984.
o Impact Aid.
-- Reduce spending from the 1983 level of $480.2 million
to $455 million in 1984.
o Aid to Disadvantaged Students.
-- Reduce spending from the 1983 level of $3.2 billion
to $3.0 billion in 1984.
-- Increase funding for the principal Chapter 1 program,
grants to local school districts, by $42 million. This
program reaches about 14,000 of the nation's 16,000
school districts.
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o Indian Education.
-- Eliminate the Department of Education's program, but
maintain Bureau of Indian Affairs' education programs
for Indians living on or near reservations.
o Vocational and Adult Education.
-- Combine the cate orical grant programs for vocational
and adult education, which totalled 823.7 million in
1983, into a.$500 million consolidated grant.
o Aid to Handicapped Children.
-- Maintain budget level at the 1983 appropriation of $1.1
billion.
* Increase state grants by $28.2 million.
* Reduce special purpose funds, the federal
discretionary program, by that same amount.
o Math and Science.
-- Initiate a three-part ro ram to enhance the quality
o teaching at the nation's elementary and secondary
schools and to enable more students to receive adequate
math and science training.
* National Science Foundation (NSF) would fund programs
to improve the quality of pre-college science and
mathematics teaching through collaborative projects
with universities, local education agencies, and
industry.
- A total of $14 million would be set aside for this
program in 1983, and $19 million in 1984.
* A new Education Department program would distribute
block grants to the states to help train additional
secondary school math and science teachers. The
program would support training for an additional
5,000 to 10,000 individuals each year.
- The block grant awards would total $50 million per
year.
* A joint NSF and Education Department program would
provide awards to outstanding pre-college math and
science teachers.
- Each winner's school would receive a $5,000 grant
to be used to improve its math and science
programs.
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Justification (General).
Proposed changes would:
o Reduce the rate of growth in federal spending.
-- Federal costs have grown far out of line with increases
in services, rising 14-fold since 1962.
* Much of this growth in spending is due in part to
complicated, burdensome and unnecessary federal
requirements.
* Changing the structure of the programs to eliminate
these requirements would help provide better service
at lower cost.
-- The proposals would save $500 million in 1984.
o Restore state and local responsibility for aid to
education.
-- States and localities are better able to determine the
specific needs of their regions than Is a distant and
Inflexible bureaucracy in Washington.
-- Providing simplified block grants to states will not
only reduce administrative burdens, but will also give
the states the flexibility they need to make more
efficient use of funds.
Justification (Specific).
o Impact aid.
-- The proposed request includes $455 million for aid to
school districts.
* Most of these funds -- $446 million -- would go to
payments for children who both live on federal
property and have a parent who works on federal
property.
* This represents an increase of $100 million over the
level of payments for these children in 1093.
-- No funds are requested for school construction in light
of the recent appropriation of $60 million for that
purpose contained in the bi-partisan employment bill,
recently signed by the President.
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o Aid to disadvantaged students.
-- The proposed reduction in total in aid to
disadvantaged students largely reflects reductions in
the two accounts as follows:
* Reduce funding for migrant education programs from
the 1983 level of $255.7 million to $129.4 million In
1984, achieved by:
- Tightening the definition of "migrant". Studies by
the Department indicate that 46% of the children
receiving aid were not truly migrant because their
education was not interrupted by their families'
moving.
- Allowing a student to participate in the program
for two years after having been deemed migrant
rather than the current five years, an
unnecessarily long period of time.
* Reduce funding for handicapped education programs
from the 1983 level of $146.5 million to $104.8
million in 1984.
- Under the present system, $603 continues to be paid
for the education of each child who leaves the
state institutions and enrolls in local public
schools even though the amount required for the
education of their handicapped peers in the regular
schools is only $245.
o Indian education.
-- The proposed elimination of Indian education programs
at the Department of Education reflects two key facts:
* Indians are eligible to participate in all Education
Department programs as long as the meet criteria
applied to all individuals. In some of these
programs, in fact, Indian participation is
disproportionately high.
- For example, $180 million of the $465 million 1984
budget for Impact Aid will benefit Indians.
* Department of Education programs that are intended to
be primarily of benefit to Indians duplicate programs
at the Interior Department.
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o Vocational and adult education.
i
-- The program simplification and combination of
vocational and adult education programs into a
consolidated grant is expected to result in
administrative savings, resulting from elimination of
unnecessary recordkeeping requirements, reports and
other paperwork burdens.
-- States and localities have consistently and
substantially "overmatched" federal vocational
education spending. This program,. popular with the
states and scheduled for turnback under the New
Federalism, is not a high federal priority and should
not be funded at high levels in a time of federal
fiscal restraint.
o Aid to handicapped children.
-- The increase in state grants is intended to maintain
the federal share of the average excess educational
cost of handicapped children at its current level of
about 8%.
-- About 40,000 more children are expected to be served.
o Math and science.
-- The resources required for this critical undertaking
will result in significant improvement in the ability
of the nation's schools to upgrade the quality of math
and science education.
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Questions and Answers.
o Fairness. By proposing the elimination of Indian programs
and reducing aid to disadvantaged students, isn't the
President again cutting the budget on the backs of the
neediest in our society?
-- Existing programs which provide support,for all
children are sufficient to provide for the education of
Indians.
-- Under the Administration's proposal, the
federal share of the cost of programs to aid
disadvantaged students would be 14% in 1984. This
proposed level is substantially ham.-gher than the entire
federal share of elementary and secondary education
financing -- 7.7%.
o Math and science. With other programs being cut at the
Department of Education, how can the Administration
justify creating this new program?
-- A strong economy and national defense will require a
technically skilled work force.
-- But objective measures have shown a steady decline over
the last 15 years in pre-college math and science
skills.
* Only one-sixth of high school graduates have taken
junior and senior level courses in science and math.
* One-third of U. S. high schools do not offer
sufficient math courses to prepare graduates for
engineering schools.
* If all students were to take just one more math or
science course, more than 30,000 additional teachers
would be required.
* Other programs are being cut because they are of
lower priority.
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o Department of Education. Has the President given up on
abolishing the Department of Education?
-- The President continues to support the dismantlement of
the Cabinet-level Department of Education.
-- A limited federal role in education is appropriate.
Thus, the President's budget proposals for 1983 and
1984 have attempted to limit the federal role and
return more responsibility and authority to the states.
* In the 1983 budget, the President proposed the
establishment of a Foundation for Education
Assistance, which was intended to restore a more
appropriate federal-state balance by reducing the
power of federal education officials to interfere in
state and local decisions.
* The Congress has not yet accepted the President's
initiative in this area.
* The 1984 budget continues to reflect these goals.
-- In the meantime, alternative approaches for dismantling
the Department of Education remain under consideration.
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History.
In 1977, the federal government established a home
energy assistance program at the Community Services
Administration in order. to provide assistance to needy
families who had difficulty paying increasing energy prices.
When CSA was dismantled in 1981, the Low Income Home
Energy Assistance Program was transferred to the Department
of Health and Human Services.
o The Program.
-- Provides grants to states to help low-income citizens
pay rising energy costs.
-- States are allowed to set eligibility standards within
broad federal guidelines.
-- The aid can be in the form of direct cash assistance to
needy households, direct payments to fuel vendors on
behalf of the needy, or payments to public housing
building operators.
-- The grant also permits states to allocate up to 15% of
their funds for low-cost residential weatherization.
o Coverage.
-- Since FY 1980, about 7 million households have
participated in the program each year.
-- In FY 1977, when the program was established at CSA,
the budget was $200 million.
-- In FY 1981, when the program was moved to HHS, the
budget had reached $1.95 billion -- an increase of nine
times in just four years.
o Administration Action to Date.
-- For FY 1982:
* President Carter requested $1.9 billion.
* President Reagan requested $1.4 billion.
* Congress approved $1.9 billion.
-- For FY 1983:
* President Reagan requested $1.3 billion.
* Congress approved $2.0 billion.
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74
The President's Proposals for FY 1984.
o Reduce budget authority by $686 million to a level of $1.3
billion in FY 1984.
o Revise state allotment formula to better direct funds to
low-income heating needs by targeting:
-- States with severe winter climates.
-- States with larger numbers of low-income households.
Justification.
o Refocuses benefits on those who were originally intended
to be assisted: low-income families and individuals whose
health and life would e en angered by inability to
provide against severe cold.
-- The current grant formula is based on 1979-80 data
regarding fuel prices and 1976 data regarding
low-income population distribution. The formula does
not reflect shifts in poverty populations nor the
changes in fuel prices.
-- The proposed formula would eliminate the Virgin
Islands, Puerto Rico, and other trust territories from
the program.
o Achieves significant budgetary savings without causing
undue hardship for those in need of heating assistance.
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Questions and Answers.
o Reduced funding. How can we provide assistance to those
who need it with the budget cut so drastically?
-- The Administration's proposed new formula targets the
grants in such a way as to:
* Provide grants at the FY 1982-83 level to states that
have the most severe cold weather conditions, such as
those in the Northeast and North central regions.
* Reduce grants to states that need them the least --
those that have more moderate climates or fewer low-
income households -- thereby enabling larger
expenditures in, cold states while reducing overall
spending.
-- In the last two years, some fuel prices have dropped
sharply in real terms, reducing low-income families'
energy costs.
o Distribution of grants. Which states will lose funds and
how will their low-income residents meet their heating
costs?
-- Some of the Southern states will probably receive the
greatest reductions in their grant allotments. These
States, however, are better able to withstand the
reductions, primarily because they have the mildest
climates.
-- Still, these States will continue to receive grants for
heating aid during unseasonably severe cold weather.
o Help for the long-term unemployed. How can we ensure that
those who have lost their jobs the hardest hit
industries will be protected?
-- The Administration's proposed formula for allocating
grants to the States utilizes the latest Census data,
in which the number of long-term jobless is included.
-- States may disregard federal unemployment
compensation benefits when determining eligibility,
which would automatically qualify many of the long-term
unemployed for low-income energy assistance.
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History.
The food stamp program began in 1961 on an experimental
basis, and was made permanent in 1964. As a pilot program
in 1961, the program's purpose was as much to remove
agricultural surpluses from the market as it was to improve
the diet of low-income families.
o Program.
-- The'federal government provides food stamps to
recipients, who then redeem them at participating
grocery stores for food.
-- The recipient family must have a gross income of no
more than 130% of the poverty line.
-- In order to qualify for food stamps, able-bodies adults
must register for and accept available employment.
o Major program changes.
-- Prior to January 1979, recipients were required to
purchase food, stamps at a certain percentage of the
stamps' face value, that percentage being determined by
the recipient's income level.
-- Effective January 1979, Congress eliminated the
purchase requirement and'made the stamps free to
eligible recipients.
o Coverage.
-- In 1965, 400,000 persons received food stamps. By 1975
that number had inceased by more than 42, times, to 17.1
million.
-- In 1981, more than 22 million people -- one out of
every ten Americans -- received food stamps.
o Costs.
-- In 1965 the food stamp program cost $35 million. By
1977 the cost had risen more than one hundred times to
$5.4 billion.
-- Outlays doubled from $5.4 billion in 1977 to'more than
$11 billion in 1981.
-- Food stamp spending per participant, adjusted for the
increase in the price of food, grew 12.4% between 1977
and 1981.
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o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed:
- Total funding of $12.4 billion for the food stamp
program.
- Delaying increases in the program's various
.cost-of-living measures.
* President Reagan proposed:
- Total funding of $10.6 billion for the food stamp
program and a separate nutrition assistance grant
for Puerto Rico.
- Numerous major programmatic reforms, including
proposals to:
a) Establish a gross income eligibility standard of
130% of the poverty line.
b) Require retrospective accounting and periodic
reporting of income.
c) Delay increases in the program's cost-of-living
measures.
d) Prohibit participation by boarders.
e) Prohibit children living with parents from
filing as separate households.
f) Establish a separate nutrition assistance grant
for Puerto Rico.
g) Reduce allotments for households with children
eligible for free school lunches.
* Congress approved:
- Total funding of $11.3 billion for food stamps and
the nutrition assistance grant for Puerto Rico.
- All major programmatic reforms proposed by the
Reagan Administration except for the proposal to
reduce allotments for households with children
eligible for free school lunch, plus:
a) Adjustments to the Thrifty Food Plan.
b) Creation of an optional workfare program.
c) A prohibition against participation by strikers
except if they were eligible prior to the
strike.
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-- For FY 1983:
* President Reagan proposed:
- Total funding of $10.4 billion for food stamps and
nutrition assistance for Puerto Rico.
- Major programmatic reforms that would:
a) Revise food stamp rounding rules so that amounts
in excess of whole dollar figures would be
dropped from benefit payments.
b) Require able-bodied food stamp applicants to
begin job search activities as soon as they
apply for Food Stamps.
c) Eliminate federal matching for all payments
errors by 1986.
d) Reduce allotments by an additional 54 for each
additional dollar of income received by the
household.
e) Discontinue exclusion of certain types of cash
income in determining benefit levels.
f) Count energy assistance payments as income in
determining household eligibility and benefit
levels.
* Congress approved:
Total funding of $11.6 billion for food stamps and
nutrition assistance for Puerto Rico.
- Major programmatic reforms, including:
a) Modified versions of the Administration
proposals on rounding rules, job search
requirements and federal matching of payment
errors.
b) Cuts in the value of the Thrifty Food Plan.
c) Revisions in the calculation of standard utility
allowances.
The President's Proposals for FY 1984.
o Hold states liable for payment errors exceeding 3% of
benefits.
-- This means that if a state makes food stamps available
to persons who are ineligible to receive them, and that
the.total amount of these errors exceeds 3% of total
benefits paid out by the state under this program, the
state will be liable to the federal government for the
amount in excess o 3%.
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o Simplify the benefit calculation by standardizing the
shelter and earnings deductions.
-- This proposal would simplify the process of determining
a household's net income by:
* Eliminating the deduction for shelter expenses and
replacing it with a larger standard deduction.
* Eliminating the 18% earnings deduction and replacing
it with a standard $75 deduction.
o Simplify the definition of "household" by requiring all
individuals living together to file as a single household
for food stamp benefit calculations.
o Simplify food stamp application procedures for households
containing AFDC recipients.
-- This reform would allow AFDC households, which have
already undergone eligibility tests for that program,
to automatically qualify for food stamps.
o Require each state to adopt a mandatory community work
experience program (CWEP).
-- This provision would assure that all able-bodied food
stamp recipients would have to find work in the private
sector or perform useful public services when no
private job was available.
o Delay the cost-of-living adjustment from October 1983 to
April 1984.
Justification (General).
o These changes would continue to reduce the growth in the
cost of entitlement programs without jeopardizing
assistance to the truly needy through:
-- Targeting benefits to those most in need.
-- Reducing the $1 billion in overpayments made every
year.
o These changes would save $741 million in FY 1984.
Justification (Specific).
o Hold states liable for errors exceeding 3% of benefits.
-- States currently do not have sufficient incentive to
improve administration.
* Benefits are 100% federally-funded.
* States do not share costs.
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-- As a result, $1 out of every $10 in food stamp benefits
is issued in error.
-- Current law target error rates are 7% for FY 1984, and
5% for FY 1985 and beyond.
-- AFDC and Medicaid already have 3% error rate targets;
food stamps should have the same.
o Simplify food stamp benefit calculation by standardizing
shelter and earnings deduction.
-- The current calculation of deductions is a complicated
procedure, often leading to caseworker errors in the
computation of benefits.
o Simplify definition of a household by requiring all
individuals living together to file as a single household
for food stamp benefit calculations.
-- Recipients qualify for higher food stamp benefits when
filing as separate households than when applying as a
single household.
-- Current law allows recipients to gain status as
separate households (and correspondingly higher
benefits) even though they live together and depend on
each other for support.
-- This reform will help to curb such abuses.
o Simplify food stamp application procedures for households
containing AFDC recipients.
-- Rather than continuing present complicated rules to
determine eligibility for food stamps, AFDC households
would receive a .standard food stamp allotment.
o Require states to adopt CWEP.
-- Present regulations require able-bodied recipients to
register their availability for work, and to seek work
in the private sector.
-- This proposal would require anyone who could not find a
private sector job to do public service work through
mandatory CWEP program, coordinated with the voluntary
CWEP program (proposed to become mandatory) already in
operation as part of AFDC.
o Cost-of-living adjustment delay.
-- This proposal is part of the government's overall COLA
delay policy.
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-- It restrains program costs without reducing benefits
(only reducing the growth in benefits).
-- Low inflation rates in the past year ensure that
recipients will not be hurt by the COLA delay.
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Questions & Answers.
o Denying adequate nutrition. Won't cuts in food stamps
condemn low-income Americans to inadequate nutrition
levels?
-- The proposed changes will not become effective until FY
1984. In the interim, the,Administration is requesting
more than $1 billion in supplemental 1983 funds to
ensure that the nutrition needs of low-income Americans
are met.
-- An estimated 21.5 million persons are expected to
received food stamps in FY 1984, a recovery
year
--
nearly five million more recipients than in
the
1974-75
recession.
-- Food stamp benefits for the more than 4 million
recipients with little or no income will be virtually
unchanged by these proposals.
-- Recipients with higher incomes will have their benefits
adjusted only marginally, this to more accurately
reflect their real need for nutrition assistance.
-- Food stamps will remain available to all families with
incomes below 130% of the poverty line.
o Elderly recipients. The elderly poor have special needs;
will this fact be taken into account?
-- The food stamp program's protections for the elderly
remain intact, including the exemption from the regular
income and asset limits and the special deduction for
high medical expenses.
-- The proposal to revise the definition of "household"
will also allow elderly persons living with their
children to apply as separate households.
o Waste, fraud and abuse. How can we be sure the
Administration's efforts to ferret out waste, fraud, and
abuse won't deny some needy persons adequate nutritional
benefits?
-- Erroneous food stamp issuance costs the taxpayers more
than one billion dollars a year; reducing fraud and
waste must be a top priority if we are to have the
funds to assist those in greatest need of help.
-- Eliminating fraud and waste in this and all programs is
an important part of slowing overall spending growth,
which is essential to achieving economic recovery, and
which in turn provides the promise of more jobs and
higher real incomes. The best way to help the poor is
by helping them become self-sufficient.
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-- Adequate protections are provided in the review process
to ensure that those who need assistance will continue
to receive it.
o Families living together. If economic conditions force
two families to share living quarters, why should food
stamp benefits be reduced?
-- If two families are sharing quarters, both should be
required to contribute to their combined living
expenses.
-- These living costs are proportionately less because of
economies in sharing quarters.
-- Food stamp benefits should be provided only to the
extent of need. It is better to target aid to those
who are unable to meet their living expenses in any
living arrangement.
o Working for benefits. Isn't it unfair to force food stamp
recipients to work for their benefits?
-- If they are able to work, then it is only fair that
they do so in order to receive benefits.
-- It is particularly unfair to tax low-income Americans
to support beneficiaries who are able to work but
unwilling to do so.
o Increasing the cost of the food stamp program. Won't
making AFDC recipients automatically eligible for food
stamps greatly increase the cost of the program?
-- On the contrary, it will reduce the cost of the program
by reducing administrative costs and duplication of
efforts.
-- It will also assist the needy by cutting red tape.
o The 3% solution. What evidence is there that the states
will be able to hold errors to 3% or less?
-- The 3% rule is already in effect with regard to AFDC, a
program where the states share the costs.
* The error rate is lower ir( that program for precisely
that reason.
* The new rule proposed by the Administration will give
the states an incentive to reduce errors in the food
stamp program as well by making errors costly to
them.
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o Freezing benefits. If food prices are continuing to go
up, how can you justify freezing food stamp benefits?
-- Benefits are not being frozen; administrative
procedures are being tightened to ensure that benefits
will go only to those who are entitled to them -- that
is, to families with incomes below 130% of the poverty
line.
-- Cost-of-living increases will continue; the only
difference is that they will take effect in April
instead of October.
-- Food price increases have moderated substantially in
recent months.
* Food prices rose only 4.3% in 1981 and only 3.1% in
1982.
* Food prices have been essentially level for the past
four months.
o CBO study. Recently, the Congressional Budget Office
released a study saying the President's food stamp budget
changes for next year will hurt the poor. A USDA official
conceded that budget cuts would reduce benefits for
millions of beneficiaries.. How can the President justify
these actions?
-- The budget request for FY 1984 does cut food stamp
funding from this year's $11.8 billion to $10.3
billion.
-- Three reforms. account for most of savings:
* Require states (which actually run the program) to
reduce error rates -- about $400 million will be
saved by tightening Administration;
* Change way eligibility is calculated -- to save up to
$300 million;
* Delay COLA adjustment for 6 months. CBO says this is
major benefit reduction but low food inflation (only
about 1 percent over last 6 months) means little real
impact on beneficiaries.
-- The proposed reforms would mean:
* Increased benefits (averaging about $4.40 a week) for
about 40 percent of the 8 million households now
getting stamps.
* Reductions for about 35 percent (averaging about
$6.25 a week).
* No change for the rest.
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-- These changes are relatively minor in view of the fact
that:
* Spending is almost $4 billion more than in 1980.
* Almost 4 million more people receiving them than in
1980.
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History.
Before the initiation of the "Great Society," the
federal government played a very minor role in the provision
of health care services. In 1963, the federal government
spent, exclusive of veterans' benefits, only $623 million on
health care services. This represented 0.5% of the total
federal budget of $111 billion.
o Programs.
Currently two major federal government programs, combined
with one tax provision, finance or help finance health care:
-- Medicare:
* Established under the Social Security Act in 1966,
this program provides medical care for Americans over
65 and for the disabled.
* Medicare is financed by general revenues, payroll tax
contributions and beneficiary premiums.
Medicaid:
Established at the same time as Medicare, this
program provides grants to states to assist them in
providing medical care to low-income families and
individuals.
The federal government provides states with
open-ended matching payments for their expenditures,
with the federal matching rate (based upon state
per-capita income) ranging from 50 to 78% of the cost
of the program.
-- Tax subsidies:
Federal tax laws help finance health care by allowing
employees to exclude from their taxable income the
insurance premiums paid by their employers.
* This subsidy will finance an estimated $29 billion
worth of health care coverage in 1984.
o .Coverage.
-- Medicare currently covers 29 million people.
-- Medicaid now provides health care benefits for 22
million people. Beneficiaries include almost 10
million needy children, 3 million disabled Americans,
and 3.5 million elderly.
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-- Medicare and Medicaid together cover approximately 27
million senior citizens, or about 99% of that age
group.
-- The two programs cover approximately 5 million disabled
Americans.
-- Approximately 62 million employees benefit from the tax
subsidy.
-- Total federal spending for health care (including
programs operated by the Department of Defense and
Veterans Administration) has soared from $5.5 billion
in 1965 to $74.6 billion in 1981, increasing more than
13 times and consuming more than 11% of the federal
budget.
-- While total public and private spending for health care
rose rapidly over this period ($42 billion in 1965 to
$287 billion in 1981) the federal share of all health
care costs more than doubled -- from 13% in 1965 to 29%
in 1981.
o Administration Action to Date.
-- For FY 1982:
* President Carter requested a total outlay level of
$46.6 billion for Medicare, and $18.2 billion for
Medicaid.
a) The proposed outlays level assumed $400 million
in legislative savings from a number of minor
reimbursement and coverage reforms.
b) Regulatory savings of $300 million were also
assumed, primarily from improvements in the
ineffective PSRO program.
c) The Carter budget also made the unrealistic
assumption that the hospital industry's
voluntary effort to hold down costs would
produce savings of $800 million.
- Medicaid.
a) The Carter Administration budget assumed 1982
savings of approximately $100 million in
Medicaid, including a mix of minor savings
proposals and several benefit expansions.
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* President Reagan proposed expenditures of $47.1
billion for Medicare, and $17.2 billion for Medicaid.
- Medicare.
a) The Reagan Administration proposed the following
Medicare reforms: repeal of unnecessary benefit
expansions, modest increases in hospital and
outpatient deductibles, and some minor
reimbursement reforms.
b) Total 1982 savings assumed from these reforms:
approximately $1.4 billion.
- Medicaid.
a) The Reagan Administration proposed to limit the
rate of increase in Medicaid to 5% in 1981.and
to the level of the GNP deflator in subsequent
years.
b) States were to be given flexibility to manage
the program more efficiently and effectively.
c) Savings of $1 billion in 1982 were assumed.
* Congressional action:
- Medicare.
a) Congress enacted the Administration-backed
Medicare reforms as part of the Omnibus
Reconciliation Act of 1981 (OBRA).
b) Total Medicare budget approved: $46.6 billion.
- Medicaid.
a) Congress adopted many of the Reagan
Adminstration proposals in OBRA for giving the
states greater freedom to manage their programs
more effectively.
b) Target rates were established for growth in
state Medicaid programs, and the federal match
was reduced for states failing to achieve
targets.
c) Savings in 1982 from the establishment of target
rates, combined with the impact of other federal
welfare program changes, were nearly $400
million.
d) Total Medicaid budget approved: $17.4 billion.
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-- For FY 1983:
* President Reagan proposed Medicare expenditures of
$49.5 billion, including legislative and regulatory
savings measures totaling $3.1 billion; and a
Medicaid budget level of $17.1 billion was proposed,
including $2.0 billion in legislative and regulatory
savings.
- Medicare: The Administration proposed reform of
physician and hospital reimbursement, integration
of federal workers into the hospital insurance
program, and making Medicare coverage secondary to
private group insurance coverage for the working
aged.
- Medicaid: The Administration proposed a number of
reforms designed to increase the responsibilities
of beneficiaries and their families to pay a
portion of the cost of needed care and to eliminate
excessive subsidies to state programs.
* Congressional action:
- Medicare.
a) Congress adopted a Medicare reform package
embodying the basic thrust of the Reagan
proposals; these reforms were part of the Tax
Equity and Fiscal Responsibility Act of 1982
TEFRA .
b) Total savings for 1983: $2.7 billion.
c) Total Medicare budget approved: $53 billion.
- Medicaid.
a) Congress adopted, in modified form, the Reagan
Administration proposals to increase beneficiary
responsibility for care financed by Medicaid.
b)
Congress
rejected most of the Administration's
proposals
to reduce federal subsidies
for
portions
of the Medicaid program.
c) Total savings for 1983: $200 million.
d) Total Medicaid budget approved: $19.3 billion.
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The President's Proposals for FY 1984 (Highlights).
o For Medicare (Highlights):
-- Provide catastrophic hospital cost protection while
reforming user cost-sharing.
* Currently, beneficiaries pay a deductible
approximately $350 in 1984) for the first day of
hospital care for each hospital admission in a spell
of illness. The Medicare program pays the full cost
for the 2nd through the 60th day of care. From the
61st to 90th day of care, beneficiaries pay 25% of
the deductible for each day in the hospital; after
the 90th day, the beneficiary has unlimited liability
for the cost of care except for 60 lifetime reserve
days during which patients pay 50% of the deductible
for each day.
* Under the Administration proposal, beneficiaries
would pay, for each spell of illness, the deductible
that is now required, as well as 8% of the deductible
for the 2nd through 15th day of care, and 5% of the
deductible for the 16th through the 60th day, without
any limit on covered hospital days. Medicare would
pay the full cost after 60 days.
* For low-income elderly who could-not afford the
Medicare cost-sharing, the patient costs of
hospitalization would be covered by Medicaid.
-- Replace Medicare's current wasteful and inflationary
hospital reimbursement system with fixed prospective
payments.
* Rates would be set for each of 467 diagnosis-related
groups, with adjustments for local wages and
exclusion of capital and medical education expenses.
* Hospitals with costs lower than the established rates
could keep the difference.
* The Department of Health and Human Services would
monitor hospitals to ensure that the quality of and
access to care was maintained.
* This proposal was incorporated in large part in the
social security reform legislation the President
approved earlier this year.
-- Impose a one year freeze on recognized physician fees
and for one year limit hospital cost increases to
inflation in the cost of goods and services purchased
by hospitals.
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-- Delay increases in the Supplementary Medical Insurance
(SMI) premium for six months (from July 1983 to January
1984) and, instead, raise the premium on January 1,
1985, from 25% to 27.5% of program costs, growing to
35% by 1988.
-- Index the SMI deductible to the Medicare economic
index.
-- Establish a program of voluntary vouchers to enable
beneficiaries to purchase the health insurance that
best suits their needs.
* Beneficiaries would have a choice of health care
plans as alternatives to Medicare.
* Election of a voucher would be purely voluntary and
beneficiaries could return to Medicare if they were
dissatisfied.
* The government would pay an amount equal to 95% of
the per-person costs of the Medicare program.
o For Medicaid (Highlights):''
-- Require states to set nominal co-payments for Medicaid
services to help deter unnecessary use of services.
-- To ensure that Medicaid remains the payer of last
resort, require states to seek medical support from
absent parents who have employer-subsidized health
insurance available which could cover the AFDC family
at reasonable cost.
o For the private insurance market:
-- Limit the tax-free exclusion of employer-paid health
insurance premiums to $175 per month for a family plan
and $70 per month for an individual plan.
Justification (General).
o Reduce growth of federal spending.
-- The cost of health care services has grown much more
rapidly than other programs. At current services
levels, Medicare is expected to grow by 16.1%, or $8.5
billion, next year, compared to average overall budget
growth of 5.4%. The Medicaid budget would grow $1.8
billion, or 9%.
-- The President's proposals will:
* Save $2.0 billion in Medicare and Medicaid for 1984,
and a total of $27.9 billion from 1984 to 1988.
* Increase tax collections by $2.3 billion in 1984 and
$31.4 billion in 1984-88.
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o Reduce health price increases.
-- Health care costs have risen much faster than the
inflation rate.
* From 1966 (the year Medicare and Medicaid began) to
1981, general prices rose 80% and medical prices
rose 522% -- or 6-1/2 times as fast.
* The cost of the average hospital stay jumped from
$316 in 1965 to $2,168 in 1981 -- an increase of 6
times.
* The cost of health insurance rose 15.9% last year --
the biggest increase ever.
-- Rapidly rising medical costs are due largely to the
lack of cost-consciousness among both users and
suppliers of health care. Costs can easily be passed
onto the taxpayers through the reimbursement procedure.
-- Requiring beneficiaries to assume a small percentage of
health care costs introduces a market force that
constrains users from requesting, and suppliers from
suggesting, medically unnecessary services.
-- Reducing tax subsidies for excessive insurance coverage
will promote cost-consciousness among purchasers of
coverage and provide additional incentives to seek
cost-effective methods of providing and financing care.
Justification (Specific).
o For Medicare:
-- Provide catastrophic hospital cost protection while
improving user cost sharing.
* In most cases, the present cost-sharing structure
provides no deterrent to avoid unnecessary use of
hospital services once a patient is admitted and pays
the deductible. Severely ill patients, however, face
a potentially unlimited financial burden.
* The Administration's proposed reforms would:
- Discourage unnecessary use of hospital services
while not inhibiting necessary admissions.
- Protect the 170,000 Medicare beneficiaries who each
year suffer an illness requiring more than 60 days
in the hospital.
- Reduce the maximum amount a person would have to
pay for a 150-day continuous hospital stay by
almost 90% from $13,475 to $1,530.
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* This proposal would save $663 million in FY 1984.
-- Reform hospital reimbursement.
* Medicare's cost-based reimbursement system encourages
inefficiency in the delivery of hospital service by
reimbursing hospitals for virtually whatever costs
they claim.
* The Administration's proposed prospective payment
system will create incentives for hospitals to limit
cost increases.
-- Freeze on fees and limit on hospital cost increases.
* These freezes would ask health care providers to
accept a temporary limitation on reimbursement
increases comparable to the COLA freezes that are
asked of federal workers, the military, federal
retirees, and social security beneficiaries.
* Because of the current low rates of inflation, these
freezes would not impose any significant burden on
physicians or hospitals.
* The one-year freeze would save $780 million in 1984
rising to $6.0 billion by 1988.
-- Delay scheduled increases in the SMI premium for one
year and raise it to 35% of program costs by 1988.
* SMI is a voluntary program for the aged who want to
buy additional medical outpatient insurance.
* When the SMI program began, beneficiary premiums were
supposed to finance 50% of SMI program costs; the
remaining 50% was to be financed by general
revenues.
* Since 1972, however, the SMI premium increase was
limited by the rate of increase of social security
benefits and fell to below 25% of program costs.
* In view of the economic difficulties confronting the
working population, this proposal would return
partially to the original legislative intent of SMI
financing split more evenly between those who choose
SMI coverage and the taxpayer, consistent with the
original program design.
-- Index the SMI deductible to the Medicare economic
index.
* This proposal would keep the economic value of the
deductible (now $75) constant in real terms, so that
taxpayers are not unintentionally forced to finance
increasing shares of SMI participants' medical costs.
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-- Institute a voluntary voucher.
* The availability of vouchers would encourage cost
competition among both private and Medicare health
care providers, slowing the growth of health costs.
o For Medicaid:
-- Recipient fees.
* Requiring recipients to pay a small fee ($1 for an
out-patient visit, for instance) would not deter a
poor person from seeing a doctor, but would help to
discourage unnecessary visits.
-- Seeking medical support from absent parents.
* Where financially possible, parents have the
obligation to pay for their family's health care.
* This proposal would save $90 million in FY 1984.
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Questions & Answers.
o Reducing budget at expense of the poor and aged. Isn't
the Administration trying to reduce health care
expenditures at the expense of those who really need
health care and simply can't afford its high cost?
-- No. The Reagan Administration would still be devoting
more funds to health than ever before -- $74 billion in
1984.
-- The President's budget would continue to provide health
care for 99% of the aged as well as for the non-aged,
needy poor.
-- Expenditure savings would come largely from
administrative efficiencies or reasonable efforts to
discourage medically unnecessary use of health
services.
o Cutting off health care to the poor. How many poor people
would lose their health benefits?
-- Under the President's proposals, nearly 47 million
people would receive health care benefits in 1983 --
approximately the same number of people as in 1982.
-- All of the genuinely needy would continue to be served
by available health care services.
o Quality of health care. How can health care costs be cut
without cutting health services or quality of health care?
-- The administration's reforms are designed to root out
waste and duplication.
-- President Carter's Inspector General of HEW estimated
that in 1977 there was between $4.1 and $4.6 billion in
waste, fraud and abuse in the Medicaid program alone.
-- Instead of hurting either quality or access, the
president's proposals would improve them.
* Slowing health care price increases would make care
more easily affordable to those who are not covered
by federal health care programs.
* If health services are absolutely free, individuals
tend to use them regardless of their real needs.
This, in turn, adds unnecessary costs to these
programs, increases prices, and forces taxpayers and
other health care users to pay more.
* Overuse of health care services is unfair in that
those who do not really need health services are
permitted to Jeopardize access to them by people who
really do need them.
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96
Modest fees will preserve this vital access to care
by restraining the unnecessary use of medical
services, thereby allowing more attention to be
devoted to those who are genuinely in need.
-- Part of the savings from the Medicare cost-sharing for
short stays will finance the costs of those with very
severe illnesses who will now pay less.
-- Bottom line: Those who need.health..care will still be
able to get it under the President's proposals, and
those with severe illnesses will have better financial
protection than they had before.
o Hospital' reimbursement reform. By reducing Medicare
reimbursements, aren't you simply shifting costs to
private payers?
-- Medicare pays almost 40% of community hospital
inpatient costs. Its inflationary reimbursement
policies have contributed to excessive cost increases
that burden the government, beneficiaries, and private
payers.
-- Through reform of its reimbursement system,'Medicare
can help other payers by reducing hospital inflation
and can set a positive example for the private sector.
o Raising SMI Premiums. By raising SMI premiums; aren't you
imposing an unfair burden on the elderly, who are already
going to have a COLA freeze?
We are delaying the normal increase for six months and
will not start the extra increase until 1985. The
increase in SMI premiums will not occur until after the
freeze is over.
-- It is not fair to ask the hard-pressed working
population to shoulder the burden of an ever-increasing
share of Medicare program costs: At a maximum share of
35% by 1980, the beneficiaries would stil_l,be.paying
less than under the original program design, which
assumed they would pay 50%.
o Instituting co-payments. By imposing fees for visits]
aren't you discouraging the poor from getting the health
service they need?
-- The fees are small ($1 to $1.50 for outpatient Medicaid
visits and $1.00 to $2.00 for inpatient days), so that
those dependent on public assistance would not be
deterred from receiving health care if they genuinely
need it.
-- But some fees are necessary to reduce overuse and
restore fairness.
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o Cap of tax subsidy. Isn't the proposed cap, simply a
highly-disguised tax increase?
-- The current subsidy has distorted private coverage
decisions by reducing the cost of health insurance
relative to other forms of compensation.
* The capped tax subsidy will eliminate the bias in
favor of higher-priced coverage and against
comparably higher wages.
-- The capped tax subsidy will still provide adequate
coverage in all parts of the nation.
-- Employees who wish to have greater coverage will still
be able to purchase it.
-- On the other hand, under the President's proposal,
employees can avoid having premiums taxed by purchasing
more cost-effective health plans.
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HO ST} G SISTANCE
Higtor ? r
The Department of Housing and Urban Development was
created by act of Congress in 1965. HUD was designed to
administer the principal programs by which the federal
government provides housing assistance.
o Programs.
There are currently five major low-income housing programs
administered by HUD,:
-- Public Housing:
*'HUD supports construction of low-income public
housing, owned and operated by local public
housing agencies, that houses an estimated 1,250,000
families who rent the units.
-- Section 8 Existing Housing Program:
* Subsidizes 995,000 households living in existing
private market rental housing, with rents limited to
a maximum "fair market rent" established by HUD.
-- Section 8 New Construction Program:
* Provides assistance to 550,000 households living in
privately owned, newly constructed or rehabilitated
rental housing. 'HUD commits to pay "fair market
rents' for 20 to 40 years for these units if the
landlord agrees to rent to eligible low-income
tenants.
-- Rent Supplement and Renta]tanc.e._Paymetts (RAP).
* Provides additional assistance to 186,000 low-income
tenants in privately owned housing. Both programs
pay the landlord the difference between tenant rent
contribution and market rent, although subsidies in
the Rent Supplement program are limited to no more
than 70% of market rent.
-- Elderly and Handicapped Housing Direct Loan Program:
* Provides loans to non-profit organizations to build
Section 8 subsidized housing for low-income elderly
and handicapped tenants. Loans have been used to
fund 120,000 units (most of which also receive
Section 8 new construction subsidies).
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o Coverage.
HUD rental assistance programs currently subsidize
approximately 2.9 million housing units for 8.3 million
people.
In addition, HUD also administers a number of programs
that provide interest reduction subsidies.
In total, HUD provides assistance to 3.5 million
households, or 10.3 million people.
-- From 1960 to 1973, the cost of subsidized housing
assistance, increased eleven-fold -- from $140 million
to $1.6 billion.
-- In only the last 10 years, housing assistance has grown
by more than five and a half times -- from $1.6 billion
in 1973 to an estimated $9.3 billion in;1983. This is
a 22-fold increase since 1960. The separate public
housing operating subsidy program (included in these
figures) has grown from about $350 million to $1.55
billion from 1973 to 1983.
-- Even with the Administration's proposed revisions,
housing assistance outlays are still estimated to
increase by $727 million next year.
-- Without the proposed revisions, housing costs would be
an additional $445 million above the President's budget
in 1984, and an estimated total of $1.8 billion over
the President's budget by 1987.
o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed:
- An appropriation of $29.8 billion to support an
additional 262,000 units of HUD subsidized housing,
split 50/50 between newly constructed units and
rent subsidies on existing units.
- No programmatic reforms.
* President Reagan proposed:
- An appropriation of $19.7 billion in support of an
additional 175,000 units of HUD subsidized housing,
45 percent newly constructed units and 55 percent
existing units.
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- Increased rent payments -- raising rent from 25 to
30 percent of income -- for tenants in HUD
subsidized housing, together with standardized and
simplified procedures for determining income for
eligibility and rent payments.
* Congress approved:
- An appropriation of $17.4 billion in support of
147,000 units -- 53 percent new and 47 percent
existing Actual program resulted in use of $12.6
billion (net of rescission) in new authority in
support of 89,000 units split 45/55 between new and
existing].
- Increasing rents to 30 percent of income and
targeting subsidies to lower income households by
reducing the income eligibility ceiling from 80
percent of area median income to 50 percent.
For FY 1983:
* President Reagan proposed:
- No new appropriations for subsidized housing, a
$2.4 billion rescission of prior year spending
authority promised upon contract cancellations, and
"swapping" Section 8 Existing Housing program
subsidies for older more expensive rental subsidies
(the 1983 budget called for a net reduction in the
number of units scheduled to come under subsidy by
1987).
- That the Section 8 Existing Housing program be
reformed to make it into a modified housing
assistance certificates or "voucher" program.
- Counting food stamps as income in asessing rents
for HUD subsidized tenants.
* Congress approved:
- A new appropriation of $8.7 billion that, together
with prior year funds for cancelled contracts,
should fund 108,000 more units of subsidized
housing -- all but 16,000 being existing units.
The President's Proposals for FY 1984.
o For Public Housing:
-- Administration proposes that no additional public
housing units be funded, although funding would
continue for already committed units. New units are
expected to replace losses, with the inventory
remaining roughly constant at 1.2 million units.
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-- Public housing operating subsidies would be changed to
a fair market rent FMR) calculation basis and the
separate modernization program would be gradually
phased-out. The new FMR operating subsidy system
should allow for maintenance and repair funding,
comparable to the private rental market.
o For Section 8 Existing Housing Program:
-- Administration proposes to eliminate rent ceilings for
subsidized units and provide a housing certificate to
the tenant to select the housing which best suits the
tenant's needs.
-- The new program would be called the Section 8 "Housing
Payment Certificate Program". (The "certificate" is
the document issued to tenants which indicates the
amount of HUD rent subsidy they will receive).
o For Section 8 New Construction Program:
-- Except for 10,000 units built in conjunction with the
Section 202 elderly housing loan program, the
Administration proposes to terminate this program and
reallocate some of the remaining funds that were going
to it into the Housing Payment Certificate Program.
o For Rent Supplement and RAP Programs:
-Administration proposes to convert tenants in these
programs to the Section 8 Existing Housing program,
thereby providing a long-term solution for the
inadequate funding mechanisms inherent in these
programs and substantially reducing the rent burden of
many of the Rent Supplement tenants.
Justification (General).
o These reforms will reduce outlays for subsidized housing
units from the present level of $2,768 to $2,430 per unit
in FY 1988.
o These reforms are expected to yield cumulative savings of
$2.5 billion between 1984 and 1988.
Justification (Specific).
o Public housing.
-- This program is very expensive.
* Operating subsidies are projected to exceed $1.6
billion in budget authority in 1984.
* Construction costs average $63,000 per unit.
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-- The program's costs have been growing at an annual rate
of 20%, whereas the percent of U.S. households living
in substandard housing has declined from 25% in 1960 to
6% in 1980.
The program has had the effect of concentrating
low-income households in economically decaying central
cities where job and economic opportunities are
limited. The government's own policies have in effect
contributed to denying the poor the right to choose
where they shall live.
Replacing present policies with the Section 8 Housing
Payment Certificate Program will greatly reduce these
problems.
* Annual rent subsidies for existing housing (as
opposed to new federal housing projects yet to be
constructed) under Section 8 Housing Payment
Certificate Program would average around $2,000 per
unit.
* Recipients would have greater freedom of choice with
regard to where they wanted to live.
o Section 8 Existing Housing Program.
-- Costs under the current program are unnecessarily
high. Rental costs for subsidized units exceed
comparable private market units' costs by 26%, because
landlords have an incentive to raise rents to the
published "fair market rent" level, and tenants have no
incentive to negotiate their own rents.
-- By providing fixed payment subsidy certificates to
tenants under a Housing Certificate Program, tenants
would have the incentive and the means to "shop around"
for less expensive units.
o Section 8 New Construction Program.
-- Changes will reduce unnecessary costs. The current
annual subsidy -- averaging nearly $4,000 per family
and ranging as high as $17,000 per family -- is
needlessly high.
--.Rent subsidies can be provided much more efficiently by
replacing this program with the Section 8 Housing
Payment Certificate Program, the cost of which would
average about $2,000 per recipient per year.
o Rent Supplement and RAP.
-- Folding this program into the Section 8 Existing
Housing Program will consolidate similar administrative
functions, and thereby reduce administrative costs.
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Questions and Answers.
o Insensitivit' to the poor. With poverty levels on the
rise, isn't it insensitive.to cut back on programs that
have no purpose other than tp provide decent housing for
the poor, the handicapped, and the-elderly?
-- The major problem confronting the poor today is not
inadequate housing, but inadequate income. The Section
8 Housing Payment Certificate Program is designed to
meet that inadequacy by targeting these subsidies
to the tenant instead of the landlord. This will:
* Give tenants an incentive to "shop around" for less
expensive housing units of comparable quality to get
the most for their money.
* Give low-income families greater freedom to choose
where they want to live.
-- The point is this: Compassion cannot be measured by
the amount of federal dollars spent. The real measure
is the success with which the Administration is able to
meet the needs of low-income Americans; the President's
proposal will do this.
o Number of poor hurt. As a result of the Reagan cutbacks,
how many millions of poor Americans will be denied
adequate housing in the year ahead?
-- Under the Administration's proposals, 3.7 million
households would receive HUD-assisted housing subsidies
in 1983, and it is projected that this number will rise
by 400,000 to 4.1 million in 1985. In contrast, only
3.3 million households received assistance in 1981.
-- Outlays for subsidized housing would continue to rise,
from $6.7 billion 'in'1981 to just over $10 billion in
1984 -- or by more than half since President Reagan
took office.
* This is because the Administration will fulfill
existing commitments to build new housing units,
while at the same time making necessary economies to
bring costs under control in the future.
o The private sector can't do the job. If the federal
government gets out of housing construction entirely, what
assurance is ther that the poor will be able to find
affordable living quarters?
-- Again, the issue is not adequate housing, but adequate
income.
--There is no nationwide rental housing shortage.
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* The vacancy rate for rental housing nationwide has
exceeded 5% for the last three years.
* To the extent that there are spot shortages of rental
housing in certain areas, the administration has
proposed both a new Rental Rehabilitation Grant
program and that new rental housing construction be
an eligible activity for Community Development Block
Grants.
- The administration's rent subsidy plan will guarantee
that the poor have access to the ample supply of
existing rental units.
o Discriminating against the poor. Doesn't the
Administration's recent policy of increasing rent
across-the-board for federally-owned or subsidized housing
and its proposal to count food stamps as part of a
tenant's income unjustly discriminate against the poor?
-- Without small 1% of income per year across-the-board
increases, many households would be allowed to pay well
below 30% of their cash and cash-equivalent income for
rent. This would be unfair to unsubsidized low-income
households which generally must pay more.
-- Counting food stamps as income merely gives a more
accurate accounting of the total cash and
cash-equivalent resources available to low-income
households for purposes of determining their genuine
need for federal assistance.
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History.
The federal government initiated job training and
employment programs in the 1930s. The public jobs of that
era were widely criticized as "make-work," and were
generally ineffective in treating the root causes of the
unemployment problem.
With the return of prosperity after World War II, the
federal government largely withdrew from jobs creation,
although not from job training. Yet the government spent
only $209 million for all employment and training programs
in 1963.
Job training programs were greatly expanded during the
"Great Society" era of the mid-1960s. With the passage of
the Emergency Employment Act of 1971 and the Emergency Jobs
and Unemployment Assistance Act of 1974, there was a
reversion of policy from job training back to direct
provision of jobs. In 1964, public jobs accounted for none
of the employment and training dollars spent. By 1980,
public jobs accounted for more than half.
o The Program.
-- The federal government's principal employment and
training programs were brought together under the
Comprehensive Employment and Training Act of 1973.
(CETA).
* These included the Job Corps training progr
(established in 1964 and the public jobs program
established by the Emergency Employment Act of 1971.
* Subsequent legislation, in 1974 and 1978, expanded
the jobs creation role of CETA, and put the Young
Adult Conservation Corps (established 1977) and the
Summer Youth Employment Program (established 1965)
under CETA auspices.
CETA programs were administered by units called prime
sponsors, which are states, cities, and counties, or
combinations thereof of over 100,000 population.
Grants to prime sponsors were used to provide various
kinds of training, counseling, and supportive services
to unemployed and economically disadvantaged
individuals.
-- CETA has also provided subsidized public jobs,
stipends, and other income support to those
individuals who participated in federally-sponsored
job experience or training.
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o Coverage.
-- CETA was expanded in 1974 to to allow for the creation
of more public jobs in FY 1975. In that year, 2.8
million people were enrolled in the program.
-- By 1978, there were 4.5 million participants in CETA.
-- In 1982, approximately 1.3 million people participated
in CETA.
o Costs.
-- In 1968, at the height of the Great Society, federal
job training and employment programs cost $1.6 billion.
-- By 1974, the amount had nearly doubled to $3.1.billion.
-- This amount more than tripled in the first 1978 Carter
budget, to $10.8 billion; more than half of that amount
was for subsidized jobs.
o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed funding CETA programs
at a level of $9.6 billion, including:
- $4 billion to give "economically disadvantaged"
unemployed persons public service jobs. (The
federal government subsidized 313,000 such jobs in
FY 1981; the Carter Administration would have
increased that number to 340,000 in FY 1982.)
- $1.1 billion for a new youth initiative program,
to consolidate and expand efforts to provide
subsidized jobs, education, and training to dis-
advantaged young people.
Abolition of the Young Adult Conservation Corps
(YACC).
* President Reagan proposed a major overhaul of the
whole CETA concept.
- The President called for:
a) Eliminating the public service employment
program.
b) Shelving the costly Carter youth initiative.
c) Abolishing YACC.
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- The President requested a total budget of $3.9
billion for remaining CETA programs.
* Congress approved:
- Eliminating the public service employment programs
and YACC.
- A total budget of $3.8 billion for the remaining
CETA programs.
-- For- FY..19.83.:
* The statutory authority for appropriations for CETA
expired at the end of FY 1982.
* President Reagan proposed an alternative to CETA,
with total funding of $2.4 billion, that would:
- Replace all the separate grants to states and
localities with a single block grant, totalling
$1.8 billion in FY 1983.
a) Rely primarily on the private sector to develop
and administer programs at the local level.
b) Require that 75% of resources be spent on
training, as opposed to 18% under CETA.
- Continue the Job Corps at a reduced level of $387
million.
- Provide $200 million of assistance to special
groups to replace the other nationally administered
programs.
- Specify that none of the grant or other nationally
administered programs would pay stipends, wages, or
other forms of income support, allowing service to
the same number of people as in the programs that
would be replaced.
* Congress responded by passing the Job Training
Partnership Act of 1982 (JTPA), which incorporated
the principal features of the President's proposal,
including:
- Grants to states.
- A primary role for the private sector.
- The requirement that 70% of program resources be
spent on actual training.
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* JTPA also provided for:
- Continuation of the Job Corps as a separate
program.
- A new grant program to assist displaced workers
in getting training for new occupations.
* Congress, however, delayed full implementation of the
President's program until 1984 by providing that FY
1983 would be a transition year, during which the
old CETA programs would continue to be funded at a
total of $4.0 billion.
-- Beginning in FY 1984:
* Resources for most job training programs will be
available through grants to the states.
- Resources will be allocated to service areas
with populations of 200,000 or more, designated
by state governors.
- Programs will be developed and administered by
local private industry councils (PICs), working
in cooperation with local governments.
* Three grants -- a block grant for training
disadvantaged youth and adults, one for SYEP,
and one for displaced workers -- will be provided
to the states.
- 70% of resources must be spent on training.
- Only 30% may be spent on support services,
administration, and stipends.
* The Job Corps training program will be continued.
The President's Proposals for FY 1984.
o Block grants to the states.
-- Funding of $1.9 billion.
o Summer jobs.
-- Funding of $638 million for SYEP.
o Assistance to displaced workers.
-- Funding of $223 million -- a doubling in funding from
last year.
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o Job Corps.
-- Funding of $553 million to train more more than 80,000
severely disadvantaged youths.
-- This is more than were assisted in 1980, and about
the same number as were assisted in 1983.
o other training programs.
-- Funding of $230 million for other job-related efforts,
including training programs for veterans, native
Americans, and migrant workers, and labor market
information development.
o A bipartisan jobs bill recently signed into law with three
major provisions.
-- More than $4.4 billion in accelerated funding of
construction projects already underway.
-- $5.3 billion for unemployment insurance benefits.
-- $216 million for humanitarian assistance for the
unemployed.
o Federal-state employment services.
-- Funding of $858 million for employment services.
o Proposed legislation to create a "youth employment
opportunity wage" for youth under age 22.
-- This would be in effect a special minimum wage for
youth of $2.50 an hour, 25% below the regular minimum
wage of $3.35.
-- This wage would be effective between May 1 and
September 30.
o Legislation by which eligible workers who have exhausted
their unemployment benefits would qualify for vouchers
(good for jobs begun by March 31, 1984) which would
entitle an employer hiring them to a tax credit.
-- Individuals eligible for Federal supplemental
compensation would have the option of converting their
benefits into vouchers.
-- These vouchers would entitle an employer hiring the
individual on a full-time basis to receive a tax credit
equal to the value of the voucher.
o Legislation to permit the states to use 2% of their
unemployment insurance tax receipts for training, job
search, and relocation of unemployed workers.
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Justification (General).
o The nature of the unemployment problem.
-- During nonrecession times, persons who leave their
jobs, new entrants to the labor force looking for their
first jobs, and reentrants, account for more of the
unemployed than those who lose their jobs.
-- Unemployment for most workers is usually less than ten
weeks.
-- The recent recession resulted in a longer period
ofunemployment for many workers; as many as one-quarter
of the unemployed will have been involuntarily
out of work for longer than six months 1983.
-- This is due in part to the length and depth of the
recession; to what economists call cyclical
unemployment -- unemployment that results from
cyclical downturns in economic activity.
-- It is also due to structural unemployment --
unemployment that remains even after cyclical
recoveries. Among the structural factors that create.
such unemployment are:
-- Inability of older industries to compete with foreign
imports.
* A mismatch between,the skills of laid-off workers
in declining industries, and the skills needed by
rising new industries.
* Barriers to labor market entry and mobility -- such
as the minimum wage.
o Costly federal makework programs provide-no real solutions
to these problems.
-- That approach has been tried many times before and has
consistently failed.
The CETA program, the most recent example, spent
$57 billion over eight years, yet only 30% of
participants were ever placed in jobs, and only
half of these were placed in private sector jobs.
o The job training and employment programs proposed by
president Reagan will:
-- To provide help to more than 3 million unemployed in
securing training or finding real jobs in the private
sector.
-- Reduce Administrative overheaed.
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-- Reduce administrative overhead.
-- Promote the economic growth that will create more than
5 million new jobs by the end of next year and more
than 15 million by the end of 1988.
Justification (Specific).
o Block grants to the states.
-- The best way to ensure that training programs will
prepare participants for jobs that actually exist is to
have the business community play a pivotal role in the
development of training programs. The block grant
program provided for by the JTPA is structured toward
that end.
-- Under JTPA, 70% of resources will be spent on actual
training; only 18% of CETA resources were spent on
training.
-- The block grant approach also ensures that programs
will be managed by persons familiar with local needs,
and that administrative costs will be held to a
minimum.
-- The proposed funding level will support 406,000
service/years, a one-third increase over programs in
effect in FY 1983.
o Summer jobs.
-- This proposed funding level will provide approximately
718,000 summer jobs for persons between the ages of 14
and 21 -- about the same number as last year.
o Assistance to dsplaced workers.
-- The proposed funding level will assist nearly 100,000
displaced workers -- four to five times the number
assisted by earlier programs.
o Jobs Corps.
-- The proposed funding level will train more youths than
were helped in 1980, and about the same number as were
assisted in 1983.
o Bipartisan jobs bill.
-- The accelerated construction funding will provide jobs
now, when they are needed, without increasing long-term
budget totals.
-- The supplemental unemployment insurance benefits will
assist workers who have exhausted unemployment
payments.
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-- Humanitarian aid will assist those unemployed workers
for whom current federal programs cannot provide
adequate assistance.
o Federal-state employment services.
-- The proposed funding level will maintain the same level
of employment services as financed in FY 1983 under the
previous system.
o Youth employment opportunity wage.
Permitting young people to work at the special youth
employment opportunity wage allows them to compensate.'
for lack of skills and experience when seeking jobs
by offering their services at a lower rate.
* This proposal allows young people to place their
feet firmly on the first rung of the job ladder.
* Once they have acquired skills and experience, they
can command higher wages.
-- This proposal would open up between 150,000 and 640,00
new jobs for youth.
o Employment vouchers.
-- Under current law, no special tax incentives are
provided to employers who hire individuals who
have experienced long-term unemployment.
-- The legislation proposed by President Reagan would
provide employers precisely such an incentive.
-- The vouchers would help more than 700,000 long-term
unemployed workers secure new jobs over the next two
years.
o Using unemployment receipts for training, research, and
relocation.
This proposal will provide an added option for states
to assist displaced workers, without requiring
increased state spending.
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Questions and Answers.
o Persistently high unemployment. Unemployment is projected
to remain at historically high levels in FY 1983 and
1984. Shouldn't the Administration initiate a full-scale
jobs creation program like the WPA in response to this
problem?
-- History proves that the federal government cannot
create jobs.
* The federal government has no resources of its own;
it must take money from the private sector through
borrowing or taxation.
- Thus the government destroys private jobs in the
process of "creating" public jobs; since federal
jobs are far more costly to create, the number of
private sector jobs lost is greater than the number
of public jobs generated.
- Make-work jobs are especially wasteful, since they
produce little of value to society.
* The Works Progress Administration (WPA), in
particular, did not work.
- WPA employed'a total of B million people between
1935 and 1943, but put many of them to "work"
putting on plays and painting murals.
* Ultimately, it took World War II to end the high
unemployment levels of the Great Depression.
-- The single most effective long-term cure for the
unemployment problem is to pursue policies that.foster
sustained economic growth.
* The economic program the Reagan Administration has
put in place will produce the necessary economic
growth to. put millions of Americans back to work
without reigniting inflation during the next two
years.
* Comparison to "jobs" program.
- Growth will, create more than 5 million new jobs by
the end of next year.
In contrast, the "jobs bill" considered by Congress.
last December would have "created" a mere 300,000
public jobs, while destroying an even greater
number of private sector jobs.
o The right to a job. Doesn't the federal. government have a
responsibility to ensure that everyone who wants to work
has a job?
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-- The President certainly believes that everyone who
:wants to work should be able to do so.
-- However, public jobs are not the answer; the government
simply does not have the resources to "gurantee"
everyone a job -- at least without sending the economy
into hyperinflation or imposing social controls
antithetical to the Amrican priniples of freedom.
-- It is better for the unemployed for the government to
foster conditions for long-term non-inflationary
growth.
o The bipartisan bill. How does the accelerated
construction measure, which the President has signed,
differ from "jobs creation" legislation of which he
disapproves?
-- These will not be make-work jobs, but jobs in projects
previously determinied to be necessary.
-- Because the expenditures are already planned, total
federal spending over the next few years will not be
increased -- but the jobs will be provided now, when
they are needed.
o Objections to the youth employment opportunity wage. Will
a lower minimum wage for youth reduce unemployment, or
just throw a different group of people out of work?
Won't employers fire adult workers in order to hire
young people at the lower rate?
-- The President's proposal includes specific protections
for current workers.
* Employers could not lay off an adult worker and
replace him with a youth at $2.50 an hour.
* Employers could not reduce the wage rate of a youth
employed before May 1.
* Violations of either protection would be subject to
criminal and civil penalties contained in the Fair
Labor Standards Act.
o Net effect. Then what good is the special wage? How
will young people be helped?
-- The youth employment wage will create more jobs
for young people.
-- The number of jobs in our economy is not permanently
fixed. There are many employers, particularly in the
service sector of our economy, who would hire more
unskilled workers if they did not have to pay the
,the minimum wage.
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-- The youth employment opportunity wage would create
between 150,000 and 640,000 jobs for youth.
o Unfair to youth. Why should young people be forced to
work for less than the minimum wage? Isn't that unfair?
-- No one will be "forced" to work for less than the
minimum wage.
-- Instead, young people would have the opportunity to get
training and work experience at jobs that would not
exist if the full minimum wage were in effect.
-- To put.it another way: Instead of being forced to be
unemployed at $3.35 an hour, young people would have
the opportunity to work at $2.50 an hour if they wanted
to.
o Other help for the unemployed. What else has the
Administration done to help the unemployed?
-- The Administration has already extended unemployment
benefits three times.
-- The President supported the Ex ort Trading Company Act,
enacted into law last year, which is expected to help
create up to 300,000 new jobs.
-- The Administration has proposed the creation of
enterprise zones to create jobs -- particularly jobs
for disadvantaged workers -- in the nation's depressed
urban areas and rural towns and to rebuild and
revitalize these areas.
* The legislation would create a series of federal
tax incentives and provide federal regulatory
relief.
* State and local governments would be encouraged
to offer additional tax and regulatory initiiatives.
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SOCIAL SECURITY
History.
In a June 8, 1.934, message to Congress, President
Roosevelt indicated that he was planning a national social
insurance system to provide against "misfortunes which
cannot be wholly eliminated in this man-made world of ours."
The following year,. Congress enacted the Social
Security Act of 1935.
o The Program.
-- Old Age, Survivors, Disability, and Health Insurance
(OASDHI), which provides benefits through three major
trust funds:
* Old Age and Survivors Insurance (OASI), a system
under which people contribute payroll taxes while
working in order to collect benefits when they
retire, or to enable their survivors to receive
benefits in the event of the worker's death.
* Disability Insurance (DI), established in 1956, which
provides benefits in the event the covered worker is
totally disabled and unable to do any work for a year
Or more.
* Hospital Insurance (HI), established in 1965,, which
covers hospital insurance costs for individuals who
are either disabled for a period of 48 months or more
or over 65 years old.
o Program Changes.
In 1939, even before the first benefits were paid out,
Congress made survivors and dependents of insured .
workers, not just the workers themselves, eligible for
:future monthly retirement benefits.
--,Amendments in 1950 and 1954 expanded the system from
one largely for urban workers to one that included
virtually all of the labor force, including
self-employed, farm, and domestic service workers as
well as many employees of state and local governments
and non-profit organizations.
-- In 1956, disasbility insurance was added for the
long-term and permanently disabled. This placed the
"D" in OASDHI.
-- Beginning in 1956, women were allowed to retire as
early as age 62 -- rather than 65 -- and receive
reduced benefits. In 1961, men were included in this
provision.
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-- Later amendments allowed disabled widows and widowers
to received reduced payments as early as age 500, and
non-disabled widows and widowers at age 60.
-- In 1972, automatic COLAs were enacted, taking effect in
1975.
-- In 1977, the previous Administration proposed, and
Congress enacted, a change in the method of indexing
benefits in order to eliminate overcompensation for
inflation.
-- During that year, the previous Administration also
proposed, and Congress enacted, major increases in tax
rates. The tax increase was spread out through 1990.
o Costs.
-- Total costs.
* In 1962, Social Security OASDI outlays totaled $14
billion.
* In 1970, the level was $29.8 billion.
* And in FY 1983, $168.0 billion.
-- Share of budget and GNP.
* In 1962, Social Security accounted for 13.1% of the
federal budget and 2.6% of GNP.
* In 1970, it accounted for 15.2% of the budget and
3.1% of GNP.
* In FY 1983, the level is 20.9% of the budget and 5.3%
of GNP.
-- Tax rates.
* In 1962, the maximum Social Security tax rate for
each of employers and employees was 3.125% on an
earnings base of $4,800.
* In 1970, the maximum was 4.8% on $7,800.
* And in 1983, it is 6.7% on a $35,700 earnings base.
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o Coverage.
-- The number of. beneficiaries increased from ' 3.5 million
in 1950..to.14.48 million. in 1960. -.In 1.9.83, approximately
36 million Americans will receive Social Security
benefits.
The covered worker-beneficiary ratio'was...36-to-1 in
1945 . . .It was 13.9-to-1 in 1950. It. was 4,9,-..to-1 in
1960.? And in 1983,"there are slightly more than 3
workers paying into the system for each person
receiving.benefits.
For all ret i red- workers , monthly benefit levels
averaged $76.:19 in 1962. They averaged $118.10 in
1970. And the average benefit level for a r- etired.?
worker alone is $408 in FY 1983.
o Administration Action to.Date.
-- For FY 1982: .
* This Administration proposed, ahd,C,ongre.ss enacted,
significant' reforms through the Omnibus `Budget
Reconciliation Act of 1981, including:
- Elimination of benefits ?f-or.hew adult students, and
phase-out of benefits to-current'adult students
over four year.s.,
- Payment of lump-sum .death, benefits only to
survivors and not directly.to..estates or funeral
homes.
Integration of disability, insurance -benefits with
other public disability payments, and elimination
of public disability benefits which exceed a'
worker'.s pre-disability take-home pay, adjusted for
inflation.
Provision for inter-fund. b.orr.owi.ng', allowing the
greatly depleted OASI trust fund to borrow from the
DI and.HI trust funds through,December 3.1,.1982,
with provis'i'on'for repayment with interest. This
borrowing was allowed to facilitate benefit
payments through June 1983.
* Later. in 1981, the Admi.nistration,proposed,
Congress enacted, more reforms,;. including .
- Extension of Social Security payroll taxation to
the first six months of sick pay.
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-- For FY 1983, the Administration proposed, and Congress
enacted, Social Security reforms in the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), including:
* Inclusion of Federal employees for HI portion of
Social Security (Medicare), effective January 1,
1983.
* Allowances for reporting tip income for employers
with ten or more employees for Social Security
purposes.
* Indefinite extension of interim provisions first
enacted in the Revenue Act of 1978 under which
taxpayers who had a reasonable basis for not treating
workers as employees in the past could continue to do
so without incurring federal Social Security or
unemployment compensation tax liabilities.
The President's Proposals for FY 1984.
o The President endorsed a bipartisan recommendation by the
National Commission on Social Security Reform to address
the solvency of the Social Security system. The Congress
passed this package substantially as proposed, and the
President signed the Social Security Amendments of 1983
into law on April 20, 1983.
o The main elements of the package are:
-- Raise $25 billion by covering all non-profit and new
federal employees under Social Security, and ban
withdrawal from coverage by State and local em Toyers.
-- Raise $27 billion by counting half of Social Securit
benefits as taxable income for taxpayers with adjusted
gross incomes in excess of $25,000 for an individual
and $32,000 for a couple, and credit the revenues
raised to the OASDI trust funds.
Raise $39 billion by advancing the OASDI tax rate
increase scheduled for 1985 to 1984, and provide a
refundable tax credit for the year 1984 for the part of
the employee rate that is rescheduled, and advancing
72% of the 1990 rte increase to 1988.
Save $39 billion by delaying the Social Security COLA
for six months, making the increase payable in January
instead of July.
Raise the self-employment OASDI tax rate by one-third,
making it comparable to the combined employer-employee
rate, and permit a credit initially and later a
deduction for part of the tax.
Raise $18 billion through a "catch-up" federal general
revenues payment to the Social Security trust funds for
past military service and making future payments on a
timely basis.
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Improve equity by removing certain gender-,based
distinctions affecting widows, widowers, divorced
spouses and survivors, and eliminating "windfall"
benefits for future retirees with pensions from
non-covered employment.
-- Provide incentives for later retirement for those
between ages 65 and 70 by gradually increasing from.3%
to 8% the delayed retirement credit phased in over the
years 1990-2010.
Justification (General).
o To make the system solvent.
-- The OASI trust fund was no longer operating on a sound
financial basis.
-- Without corrective legislation in the very near future,
the fund would have been unable to make benefit
payments on time beginning no later than mid-1983.
-- Under previous law, and on the basis of any reasonable
set of economic assumptions, the expenditures of the.
OASI program would have continued to exceed income from
payroll taxes and other sources through at least 1986.
-- The enacted legislation will correct these critical
problems.
o To correct the trust fund's shortfalls.
-- For the short-term, the enacted legislation will reduce
the shortfall by an estimated $166 billion through 1989
enough to make up the funding gap the Social
Security Commission had foreseen through 1990 -- and it
is projected to restore trust fund balances to a safer
reserve level.
-- For the long-term, the legislation eliminates the 75-
year shortfall identified by both the Commiss on. and
the 1982 Trustees Report.
o The legislation contains some elements which in isolation
would not have been totally acceptable to the President,
but were included in a package which was the best proposal
which could have been agreed upon and enacted for the
benefit of the Nation's workers and Social Security
recipients.
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Justification (Specific).
o The inclusion of all non-profit and new federal civilian
workers in the Social Security system.
-- The additional OASDI taxes paid on behalf of the
newly-covered workers over the long run will exceed, on
the average, the additional benefits that result from
such employment, thereby improving the Social Security
system's cash-flow position.
-- This occurs because many federal workers receive Social
Security benefits upon their retirement by having
worked a short time in the private sector; they should
be required to contribute to the system as well, and
their windfalls should be eliminated.
-- Present federal workers will not be affected by this
recommendation, and the financing of their benefits
over the long run will not be adversely affected.
* This recommendation would benefit the system by $20
billion between 1984 and 1989.
o Counting half of Social Security benefits as taxable
income for higher income recipients.
-- This aspect of the legislation will treat Social
Security benefits for high-income recipients in much
the same way as private pension income is treated under
the Internal Revenue Code.
-- This provision will affect only about 10% of OASDI
beneficiaries.
o Advancing the current law Social Security tax increases.
-- These are not new taxes, but only minor accelerations
of taxes that are already in the law.
-- The taxes will have only a small effect on the overall
economy, but a major effect on the solvency of the
Social Security system.
o Delaying the COLA.
-- Social Security benefits will not be reduced in any way
whatsoever; increases in their levels will just be
postponed six months.
-- The current low rates of inflation ensure that the COLA
delay will have no significant adverse effect on Social
Security recipients.
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Low-income elderly -- those receiving both Social
Security and. Supplemental Security Income,bene,fits,--
will be. furthergrotected"by an increase in the SSI
disregard provision., from the present $20 to $50 per
month.
o Increasing the self-employment Social Security tax.
-- This provision will put self-employed individuals,. on
the same basis as employees.
-- Previously, the self-employed had contributed less into
the system on their behalf than has been contributed
jointly by employers, and employees on the Tatter's
behalf, but had. received equal benef?its;.
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Questions and Answers.
o Fairness. Hasn't the Administration been callous in its
treatment of women and poor elderly people who depend on
the Social Security system for their survival?
-- Not at all. The legislation exhibits compassion toward
both of these groups.
-- The following provisions, which are primarily designed
to benefit women, were included in the reform package
even though these provisions add more cost to the
system at a time when savings are being sought.
* The law previously permitted the continuation of
benefits for surviving spouses who remarry after age
60. The legislation permits the continuation of
benefits also for:
- Disabled surviving spouses aged 50-59.
- Disabled divorced surviving spouses aged 50-59.
- Divorced surviving spouses aged 60 and over.
* Spouse benefits for those who have been divorced for
a significant period of time will be a able at age
62 or over if the former spouse is eligible for
benefits, whether or not the benefits have been
claimed or whether they have been suspended for
substantial employment.
* The benefit rate for disabled widows and widowers
aged 50-59 at disablement will be the same as that
for non-disabled widows and widowers first claiming
benefits at age 60, instead of the lower amount under
present law. This change will be applicable to
beneficiaries of this category who are on the rolls
already as well as new recipients.
-- The legislation also demonstrates compassion for
elderly people who depend on Social Security benfits
for their livelihood.
* No elderly recipient will have his or her benefits
reduced.
* The inclusion'of 50% of Soclai Security benefits as
taxable income for the elderly with substantial
outside incomes will affect only 10% of elderly
people -- those with the highest incomes -- whereas
a more general benefit reduction would have harmed
all recipients, including those with little or no
outside income.
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o Employee tax increases. How can the Administration ,
justify taking even more out of working men and women's
paychecks?
The speed-up in OASDI tax rate increases for employers
and employees affects only three calendar rears.
* In 1984, the tax rate will be 5.7% rather than the"
5.4% scheduled under previous law. (The 1985-1987
rates will stay at the 5.7% level. as scheduled under-
"the previous law.)
* In 1988?'and 1989, the tax rate will rise to 6.06%
rather than the 5.7% scheduled under the previous
law. (In 1990'and"beyond, the rates will be 6.2%,
as mandated by,present law.)
-- In 1984, a refundable income tax credit will be' ''
provided against the individual's Federal income tax
liability so that he will pay no more in total'than he
would have under present law.
-- For 1988 and 1989, the tax increase amounts to a mere
$1.38 per week for a'worker earning $20,000 per year.
-- The amount of increase Was'minimized by'two other.
actions to make sure employees contr'ibut'ing'to the
system are not unduely burdened:
* The elimination of "windfall" benefits to 'indivi.d.uals
I who spend most of their working careers in noncovered
employment but who also become eligible for OASDI
benefits as- a result of relatively short periods in
covered einployinent with other employers.
* The requirement that self-employed workers pay an
amount equal to the combined employer-employee 'tax
rate.
o General revenue financing. Aren't a number of the
legislation's provisions actually thinly-disguised means.
of dipping into general revenues? ,
-- No. The Commission specifically rejected general
revenue financing of So.ci al, Security..
-- Specific provisions, while appearing to "dip into
general revenues," actually do not.
0
* The crediting~to Social,Security of income taxes on
half of some Social Security'benefitse These'"
recipients would not even be a part of general
revenues were it not for the legislation.
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* The refundable tax credit in 1984: This is not used
to finance Social Security, but merely to ease the
tax burden faced by employees when the 1985 Social
Security tax increase is accellerated; it is thus an
equity measure.
* The deductibility of the, increased self-employment
tax: This provision merely conforms deductibility
for self-employed persons to that already enjoyed by
employers.
* The military service credits have always been paid
out of general revenues, so paying the present value
of these long-standing entitlements does not
represent a new "tap" on general revenues.
* Unnegotiated checks are trust fund monies held by the
Treasury, which are now being returned. to the trust
funds.
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Since that time, the federal role in the provision of
"social services" has grown wi?th...the addition of" various
titles of the Social Security Act. of 1935. .Today, ;the term
social services is used .to include. services: not -only for
youth but certain public services-for fami-lies, the
economically disadvantaged, the elderly and the handicapped.
conference came recommendations to Congress concerning'. '
services for' children and youth, "'and-, ~ eventually, ? passage
the Chi;ldren's Bure,au?Act of .1.912.
In 1909, President Theodore Roosevelt called fora
White House Conference on Children and Youth. Out"of''that
History.
-- Social services block grant.
* Provides for various types of aid for the
disadvantaged, including child day care, child
protective services, foster care, homemaker services,
family planning, preparation and delivery of"meals,
transportation, counselling, legal services, and
substitute care and day care for adults.
* In FY,1973, the combined cost of the various
categorical programs was $1.6 billion. In FY 1981,
the last year before the programs were combined into
a block grant, the cost was $2.6 billion.
o Programs.
-- Rehabilitation services.
* Makes grants to states for the vocational
rehabilitation of physically and mentally handicapped
ndividua s to help them become gainfully employed
and live more independently.
* In FY 1973, the cost of rehabilitation services was
$699 million. In FY 1981, the cost was $1 billion.
-- Community service programs.
* Provides aid to states through the Community Services
Block Grant to help the poor avoid or escape
long-term poverty, primarily through employment and
education.
* In FY 1981, the budget for these programs was $619
million.
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-- Family social services.,..
* Provides aid to the states for foster care ado tion
assistance and a consolidated child we are services
program that comb nes funding for . ch we are
services and training.
* In FY 1981, the budget for these programs w4s $506
million.
-- Services for children, youth and families.
* These programs are designed to i2 grove the quality of
services for low income, neglected, abused or
homeless children.
* Funding in this area is almost entirely for one
program -- Head Start -- which assists community
groups in providing comprehensive services for
low-income pre-school children and their families.
* In FY 1973, the cost of these programs was $916
million. In FY 1981, the cost was $1 billion.
-- Services for the elderly and other special groups.
* Provides grants to state and local agencies that
offer a wide range of services for older Americans,
particularly those with the greatest needs. These
services include transportation, legal services and
the provision of meals served in a group setting or
delivered to the home-bound.
* In FY 1973, $63 million was devoted to these
programs. In FY 1981, budget authority was $915
million.
-- Domestic volunteer programs.
* ACTION and a small network of agencies attempt to
stimulate volunteer services though technical
ass stance, demonstrations and small grants.
* These programs provide personal aid to the poor, the
handicapped, the elderly, and other groups such as
Viet Nam veterans with special problems stemming from
military service.
* In FY 1973, the level of spending for these programs
was $78 million. In FY 1981, the level was $150
million.
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-- In FY 1973, the federal government spent $3.7 billion
.to aid the. disadvantaged with social services programs.
-- In FY 1981, the budget for these'programs was $615
billion.
o Administration Action to Date.
-- In FY 1982:
* President Carter requested $7.2 billion.,
* President Reagan requested $5.8 billion, with',-
.1
significant savings to be accomplished -throh the
proposed Social Services Block Grant.
* Congress approved $6.1 billion, enacting the Social
Services Block Grant.
-- For FY 1983:
* President Reagan requested $5.0 bi-llion,.with savings
to be accomplished through a.proposed Child Welfare
Block Grant.
* Congress approved $6.4 billion, failing to enact the
Child Welfare Bloc kk Grant.
The President''s Proposals for FY 1984.
o Social services block grant.
'
-- Maintain budget authority at $2.44 billion -for 1984.
* Allow the states maximum flexibility to select-the
activities that should be funded.
* Permit states to fund economic. development, rural,
housing programs and'other activities previously
funded under the community services block grant,
which is in its last stage of phase-out.
o Rehabilitation services.
-- Maintain budget authority at the 1983 level'of $1
billion.
--Simplify administration and increase state flexibility
in service delivery n the state grant program.;
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-- Base the distribution of one-third of the grant funds
to the states on their success rates at rehabilitating
severely handicapped Individuals. Continue to
distribute the remaining two-thirds according to
population.
o Community service programs.
-- Provide $3 million for the proposed close out of the
Community Services Block Grant.
o Family social services.
-- Increase bud et authority from the 1983 level of $560
m on to million n 1984.
-- Consolidate child welfare services and training
programs at the state level.
-- Increase budget authority from the 1983 level of $940
m on to billion in 1984.
o Services for the elderly and other special groups.
authoritty from the 1983\ level of $1.2
-- Reduce budget
billion to . biIron in 1984.
-- Consolidate the Department of Labor's Senior Employment
Program and the'Department of Agriculture's Elderly
Feeding Program Into the Depratment of Health and Human
Services' Older Americans Program.
o Domestic volunteer programs.
--.Reduce bud et authorit from the 1983 level of $129
m on to million in 1984.
-- Eliminate the VISTA program.
-- Reduce overhead costs at ACTION from the 1983 level of
$25.8 million to $18.1 million in 1984 primarily by
reducing staffing.
Justification (General).
o Maximize state responsibility for planning and
del vering social services by giving them the flexibility
to design programs that best meet their citizensne
-- 40% of social services spending would be through block
rg ants in FY 1984.
-- Legislative proposals will be submitted by the
Administration to give states more flexibility in the
aging and child welfare programs.
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o Ma'intain or expand coverage in those programs that
effectively serve the needy and foster self-sufficiency
while promoting management efficiency.
-- Increase Head Start enrollments in the most cost-
effective, high quality projects. Funding would be
provided to serve 424,900 children, 43,000 of whom are
handicapped.
-- Maintain the FY 1983 level of delivering 190 million
meals to-some 9-million e.lderly'persons-'each day.
-- Provide an array of services to more than 2 million
children and their families.
-- Provide monthly subsidies to families adopting more
than 3,000 children with special needs.
-- Continue to help states strengthen and unite families
and find permanent homes for children A o need to be
adopte .
- Continue reliance on volunteers to help the needy.
Over 500,000 volunteers help out in Head Start
classrooms, and another 300,000 serve meals to the
elderly.
Justification (Specific).
o Social services block grant.
-- Increased flexibility.
* State and local governments are best equipped to
determine the needs of their particular communities,
to establish priorities, and to fashion and implement
programs to meet those needs in the most effective
and efficient way.
-- Permitting states to use social services funds to
support activities previously funded under the
community services block grant.
* Social and economic needs are interrelated.
* If dependency on government programs is to be
reduced, both social and economic needs should be
addressed.
o Rehabilitation services.
-- The proposal to distribute a portion of the state grant
funds according to performance is intended to encourage
the states to concentrate more attention on the most
severel disabled and to apply methods that are the
most effective and the least time consuming.
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o Community services programs.
-- The provision of $3 million for the community services
programs is sufficient to close out activities funded
under the Community Services Block Grant.
-- This block grant is unnecessary because its functions
are all provided for under the Social Services Block.
Grant.
o Family social services.
-- The consolidation of service programs and training
programs at the state level is designed to give states
greater abilit to apply resources where they would be
most beneficial.
-- The consolidation would also improve the effectiveness
of program administration. Presently, services are
provided at the state level while training programs are
the responsibility of the federal government.
-- The increase in budget authority would allow the states
to provide services to a greater number of people.
o Services for children, youth and families.
-- The increase in budget authority for these programs --
slightly more than $100 million -- is primarily
intended to ensure than the Head Start program serves
at least as man children in FY 1984 as in the prey ous
year by offsetting the a fect of inflation.
o Services for the elderly and other special groups.
-- The slight reduction in budget authority reflects
Improved program management and increases in voluntary
contributions; service levels would be maintained.
-- The consolidation of programs that are currently housed
in different federal agencies into one program would
further facilitate better administration.
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o Domestic volunteer programs.
-- The proposed reduction in domestic volunteer programs
primarily reflects the elimination of the VISTA
program.
-- VISTA should be eliminated because:
* The agency is not cost-effective, especially when
compared to other domestic volunteer . agencies.
- VISTA.
a) Expenditure per full-time volunteer: $6,700.00
per year.
b) Return on each $1 spent: $2.18.
- Retired Senior Volunteer Program.
a) Expenditure per full-time volunteer: $80.00 per
year, or 48c per hour.
b) Return on each $1.00 spent: $7.0
- Foster. Grandparents.
a) Expenditure per full-time volunteer: $2,847.00
per year,
b) Return on each $1.00 spent: $2.50.
* The agency is less effective in meeting human needs
than are other volunteer programs."
* The agency's volunter level of 1,750 service years is
an insi nificant` ortion of nationwide volunteer
sere ce.
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Questions and Answers.
o Reduction of the budget at the ex ense of the needy.
Won t the cutbacks in social services programs drastically
reduce support for those who are most vulnerable in our
society?
In the critical areas, the President has not proposed a
reduction, but an increase in spending. Under his
proposal:
* Budget authority for family social services grants to
the states, which supports such programs as foster
care and adoption assistance, would be increased from
the FY 1983 level of $560 million to $601 million in
FY 1984.
* Budget authority for the children, youth and families
account -- primarily consisting of Head Start --
would be increased from the FY 1983 level of $940
million to $1.1 billion in FY 1984.
Under the President's proposal, at least as many
individuals will be served under these programs as in
the past.
* The number of Head Start enrollees would increase by
10%.
* Though budget authority for programs that serve the
elderly will be reduced, service levels will remain
the same, due to improved management. The same
number of elderly individuals will cotinue to receive
meals.
o Promoting family stabilit . Don't the Administration's
proposals undercut am y stability by cutting back on
services that keep families together?
-- Sufficient funding is provided under the social
services block grant to enable states to continue
funding for day care at or above the FY 1983 level.
-- Ongoing programs that serve abused, neglected, runaway
and homeless youth are funded sufficiently to serve at
least as many as n the revious year. Two million
children and their families will receive counsel
ng
and reunification services.
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History.
Federal student financial aid programs, now in the
Department of Education, were established to assist students
who might otherwise be unable to attend college because of
financial need. However, since their inception these
programs have expanded far beyond their original purpose and
now provide government subsidies to many undergraduate and
graduate students who can and should pay their own way.
o Programs.
Federal postsecondary student financial aid falls into
three major program areas:
-- Guaranteed Student Loans (GSL):
* Established in 1965 to provide low-interest loans to
students from low- and moderate-income families.
* The current program completely subsidizes interest
during a student's postsecondary education and any
interest above 9% after graduation.
* In 1978, family income qualifications for obtaining
loans were abolished. In 1981, Income qualifications
were added back only for students whose families
had incomes over $30,000.
--:.Pell Grants:
* Established in 1972 as Basic Educational Opportunity
Grants (BEOG) to provide direct aid to students with,
demonstrated financial need.
Needs analysis provisions have been liberalized by
legislation in recent years to loosen eligibility
requirements and increase the size of awards.
--:Campus Based Aid:
* Includes:
National Direct Student Loans (NDSL, begun in
1958), which provides loans at 5% interest.
College Work-Study (begun in 1965), which pays 80%
of a student's salary in federally-approved work-
study programs.
Supplemental Education Opportunity Grants (SEOG,
establ shed In 1965), which provides direct grants
to needy students.
* Eligibility is determined for the students by the
institution according to a need analysis using
guidelines set by the federal government.
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o Coverage.
-- 10 years ago, only 14% of college students received
government loans and grants, with nearly 60% of it
going to low-income families.
Now, more than 40% of the nation's 12.5 million
degree-seeking college students receive such aid, with
significant amounts of aid going to students from
middle- and upper-income families.
o Costs.
-- Overall costs for postsecondary student financial aid
have grown enormously over the past 16 years. In 1965,
outlays for such aid were $250 million. By 1981, it
had soared to $6.5 billion, representing a 25-fold
increase.
-- Costs for GSLs increased seven-fold between 1977 and
1981, from $357 million to $2.5 billion.
-- Pell Grants costs increased more than 75% over this
period, from $1.4 billion in 1977 to an estimated $2.5
billion in 1981.
-- Campus-based aid rose from $963 million in 1977 to
1.1 billion in 1981.
o Administration Action to Date.
For FY 1982:
* President Carter requested $6.4 billion.
* President Reagan requested $5.7 billion in budget
authority, including program reforms as follows:
- Guaranteed Student Loans.
a) Require a needs analysis for all applicants.
b) Eliminate in-school interest subsidies for all
GSL borrowers.
c) Eliminate the administrative allowance of 10%
per applicant that was paid to the institutions.
d) Allow the Secretary of Education to collect on
all state guarantee agencies' unsecured defaults
after the Department of Education had paid
reinsurance claims.
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- Pell Grants.
a) Increase the maximum award from $1,750 to $1,800
in FY 1982.
b). Require that a student contribute $750 to his
education before receiving a grant.-
c) Raise assessment rates on family discretionary
income from 10.5% to 20%.
* Congress approved $6.6 billion, and acted on the
President's programmatic reform proposals as follows:.
Guaranteed Student Loans.
a) Approved the requiring of a needs analysis for
students, whose families earn more than
$30,000, rather than for all students as the
President had requested.
b) Enacted a 5% origination fee on new loans rather
than approving the elimination of the in-school..-
interest subsidy.
c) Approved the elimination of the administrative
allowance of 10% paid to the institutions.'
d), Approved the proposal to allow the Secretary-of
Education to act on defaults held by the state,,.,,,
guarantee agenc es.
- Pell Grants.
a) Approved the increase in the maximum grant to
b) Rejected the proposed, self-help requirement.
c) Rejected the proposal to increase assessment
rates on family discretionary income from 10.5%
to 20%, and instead increased the rates to 11%,
13%, 18% and 25% on increments of 5,000 in
discretionary income.
-- For FY 1983:
* President Reagan requested, $4.3 billion in budget
authority, including program reforms as follows:
Guaranteed Student Loans.
a) Increase origination fee charged on new student
loans from 5% to 10%.
b) Require all applicants to demonstrate need.
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c) Limit graduate and professional students to
borrowing from the less subsidized auxiliary
loan program, and increase the amount they would
be able to borrow in the aux ll ary loan program
to $8,000 per year and $40,000 over five years.
- Pell Grants.
a) Reduce or eliminate benefits to the highest
income students by increasing the percentage of
discretionary income that families are expected
to contribute to the support of a student.
- Campus Based Aid.
a) Fund NDSL with funds received by repayments into
its $5 billion revolving loan fund; otherwise,
provide no new funds.
b) Provide no funds for SEOG except for funds
schools w sh to transfer from their Work Study
funding.
Focus College Work Study assistance on the
neediest students from lower-income faamillies.
* Congress approved $6.7 billion, but failed to enact
any of the President's programmatic reform proposals.
The President's Proposals for FY 1984.
o Guaranteed Student Loans.
-- In line with declining interest rates'and actual prior
year loan volume, reduce budget authority from the 1983
level of $3.1 billion to $2.2 billion. in 1984, without
reducing loan volume.
-- Require that all students demonstrate need for
assistance, as opposed to the current practice of
applying a test only to students from families earning
$30,000 or more.
-- Increase loan origination fee from the current 5% to
10% of the loan for graduate students.
-- Require state grant agencies to return loan advances
they have received from the federal government.
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138
o Pell Grants.
Increase budget authority from the
1983
level
of $2.4
billion to $2.7 bill on in 1984.
-- Require that all
students
contribute at
least
$800
or
40%, whichever is
higher,
of the cost of
their
education before
receiving
a Pell Grant.
* The student contribution could be satisfied,by
Work-Study, summer or part-t-ime earnings, loans or
grants from private sources, or savings.
-- Raise maximum amount that a student can receive from
the current level of $1,800 to $3,000 In 1984.
o Campus Based Aid
-- Increase budget for the College Work-Study program by
40%, from the 1983 level of $590 million to $850
million in 1984.
-- Request no new capital for the National Direct Student
Loan program. Through collections, $550 million should
be available for loans to 688,000 students in 1984.
o Education Savings Accounts.
-- Permit the creation of special tax-exempt saving's.
accounts into which parents cound deposit money, to..be
used for their children's education.
-- Parents could deposit up to $1,000 per year per child.
-- Full use of these accounts would be available to
families with annual adjusted incomes up to $40,0.00',
with partial benefits available to families with
incomes up to $60,000.
Justification (General),
o Restore the primary role of the family and the student in
meeting the responsibility for postsecondary education
costs.
-- Because students and families are the primary
beneficiaries of education, they and not the taxpayers
should bear the major cost.
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* Despite increased family incomes, families
contributed 25% less to their children's education in
1981 than in 9T 78.
* Under current law, students are able to assemble an
aid package that requires them to make no
contribution at all to their education.
o Target federal education programs to the neediest
students.
-- The President's proposal to require that all applicants
for Guaranteed Student Loans demonstrate need will
ensure that GSL funds go only to those who really need
them.
-- The proposed changes in the Pell Grant program will
target more of the funds to students from families
that earn less than $12,000 per year.
* In 1981, 66% of the students receiving Pell Grants
were fromFamilies earning less than $12,000 per
year.
* In 1984, the percentage is expected to be 73%.
-- The proposal to offer complete use of Education Savings
Accounts to lower- and middle-income fam es, and to
begin the phasing out use between $40,000 and $60,000
is designed to make sure this program provides maximum
benefit to the families and students who need the he p
the most.
Justification (Specific).
o Guaranteed Student Loans.
-- The reduction in budget authority for GSL primarily
reflects the substantial decline in Treasury Bill
rates, from 1 $ in to a proJecte rate of 8% in
1984.
* Still, total loan volume will increase; $7.2 billion
in loans will be made in 198 , as compared to .6
billion in 1983.
-- The requirement that all students meet the needs test
to qualify for GSLs will ensure that available monies
go to the students with financial need.
* If a family truly needs assistance, a needs test will
only confirm this, and not reduce their assistance
levels or deny them aid.
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-- The higher loan origination fee is warranted because
graduate students can be expected, on average, to earn
a substantially higher income than the general
population, on, and .therefore should be able to pay more
toward the interest costs of their subsidized .loans.
o Pell Grants.
-- The proposal to require a minimum contri.bution_ by the
student is intended to restore the' r?mar?y roles of the
family and the.student in meeting the respons i,. i l Ity(
for postsecondary educat?iori costs. -? ?
* Under current law,. schools,and students can assemble
monies from.as many as six different federal programs
to,pay for education costs in ways- that ,requ.ir?e .only
'a limited contribution from the family and none from
the student.
* The proposed reform.ensures that all students make at
least some contribution to their own education..
-- The proposed increase in the. maximum possible. award
will open up new opportun.iti.es for low-income students
to attend a wider range of schools.
o Campus Based Aid. .
-- The,additional funding for.Work-Study wil,1 .ex and.?
student employment opportunities on the campuses',, in-
state and local government agencies, and in the private
non-profit sector.
Thus, students will be more able to prov de,.their
.expected self-help contribution to their ed-ucat'on'*.
The number of students participating in the .
Work-Study program is expected to increase from.,
810,000 in 1983 to 1.1 million in 1984.
The number, of participating institutions A s
expected to increase from 3,400 "in 198 3 to 3,'600 in
1984.
* With -a 40% increase in the Work-Study budget?,.the
average award will increase from $725 in,1983.to $80.0
in 1984 -- exactly matching the expected student
contribution under the Pell Grant program.
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Questions: and Answers.
o Students losing aid. Will students lose aid under the
Reagan proposals?
-- Some students may lose their eligibility to receive
student aid. Those who do will be students from
families that are too affluent to qualify under the
needs test.
* Those who need aid will continue to receive it.
-- The reduction in the number of awards allows for an
increase in the size of awards to those with genuine
financial need.
* The size of the average Pell Grant award is expected
to increase from the current level of $968 in 1983 to
$1,300 in 1984 -- a more than one-third rise.,
o Minimum contribution and neediest students. How will the
very poorest be able to provide the m n mum contribution?
-- Needy students in particular would be eligible for aid
under the expanded College Work-Study program. The
money sucha student earns in the Work-Study program
could be used to satisfy the minimum contribution
requirement.
-- The student is encouraged, however, to apply earnings
from summer employment and part-time employment, or
loans or rg an.ts from private sources, when avalable,
toward his own educational expenses. For many needy
.students, this would be an active option as well.
o Education Savings Accounts. Aren't these proposed
tax-exempt savings accounts just another tax shelter for
the rich?
-- No. These accounts are designed to help families with
annual earnings below $60,000 per year to pay the cost
of their children s education.
-- Maximum tax benefits will be available only to families
with annual incomes below $40,000.
-- Even for a family in the 20% marginal tax bracket, the
tax savings amount to $200 per year per child -- a
significant contribution to the children's h gher
education.
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History.
Unemployment compensation was first authorized under
the Social Security Act of 1935. It provides benefit
payments to those who lose their jobs through no fault of
their own.
o Programs.
-- Unemployment Insurance:
* Provides direct cash payments to individuals
temporarily out of work and looking for jobs.
* Regular benefits are financed through a state payroll
tax on employers. Extended benefits are financed
one-half from state and one-half from federal taxes
on employers.
* State and federal administrative costs are financed
by a federal tax on employers.
* Benefit levels and the number of weeks a recipient is
entitled to receive benefits varies from state to
state. The benefit usually paid is 26 weeks for
regular benefits, and 13 additional weeks for
extended benefits in high unemployment states.
-- Trade Adjustment Assistance.
* Provides training costs, and job search and
relocation allowances to workers whose loss of work
is attributed, at least in part, to foreign imports.
TAA also provides additional weeks of cash
unemployment payments for such workers.
* TAA benefits equal the worker's weekly unemployment
benefits and are paid to those who exhausted all
their weeks of unemployment and were still not
working. Such workers can receive a total of 52
weeks of unemployment and TAA benefits combined.
o Coverage.
-- For Unemployment Insurance:
* About 97% of wage and salaried employment in the
United States is covered by unemployment compensation
programs.
* An estimated 4.8 million workers per week will
receive unemployment benefits during 1983, and 3.4
million workers in 1984.
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-- For Trade Adjustment Assistance:
* From April 1975 to March 1981, 1.3 million workers
received TAA.
* In September 1982, slightly more than 8,000 workers
were receiving TAA benefits.
o Costs.
-- For Unemployment Insurance:
* Total cost of benefits for this program are projected
at $32.7 billion for 1983.
-- For Trade Adjustment Assistance:
* TAA cost $1.5 billion in 1981.
* The Omnibus Reconciliation Act of 1981 reduced the
cash benefits portion of the program so that it cost
only $84 million in 1982.
o Administration Action to Date.
-- For FY 1982:
* President Carter had proposed:
- To revise the calculation of the. insured
unemployment rate ("trigger rate") used to
determine when extended benefits are payable.
- To make unemployment insurance coverage of CETA
public service employees optional rather than
mandatory, and to prohibit the use of federal
public service employment funds to pay such
benefits.
* President Reagan proposed:
- To target extended benefits on high unemployment
states through revisions in the trigger rate
calculation.
- To prohibit the payment of extended benefits to
those who did not work at least 20 weeks in the
year that made them eligible for unemployment
insurance.
- To require workers who had received 13 weeks of
regular benefits and whose prospects for returning
to their previous line of work were not good to
seek employment that provided wages at least equal
to their benefit amount, or the minimum wage,
whichever was higher.
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- To terminate TAA effective September 30, 1983, and
in the interim to restrict its use to actual
employment adjustment problems:
- To make ineligible for Unemployment Compensation
for.Ex-Servicemembers'those who voluntarily left
the. service, who were released or separated for
cause, or who failed to reenlist when they could
have done so.
* Congress approved:
- All of President Reagan's proposed reforms for
extended benefits.
- The proposed changes in Trade Adjustment Assistance
for workers.
- The basic eligibility changes in Unemployment
Compensation for Ex-Servicemembers.
-- For FY 1983:
* President Reagan proposed:
- To round down the weekly unemployment benefit
amount to the next lower dollar.
- To eliminate Trade Adjustment Assistance weekly
cash benefits and concentrate instead on training,.
job search and relocation.
-.To deny eligibility for. unemployment benefits to
ex-servicemembers who are not given an opportunity
to reenlist becasue of a record of indiscipline or
failure to maintain skill proficiency.
* Congress approved:
- A change in federal payment to states for the 50%
federal share of extended benefits aimed at
encouraging states to round benefit amounts down to
the next lower dollar.
(No change in TAA weekly cash benefits.) A change
in TAA certification criteria designed to make more
workers eligible for TAR benefits.
An expansion in coverage under Unemployment
compensation for Ex-Servicemembers that provides up
to 13 weeks of benefits (after a 4-week waiting
period) to those who complete their first full term
of service (and to others under certain
circumstances) and who are discharged under
honorable conditions.
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- A change in the income threshold at which
unemployment benefits become taxable, from $20,000
(single person) and $25,000 (joint return) to
$12,000 (single) and $18,000 (joint).
- -Vith the President's support, a temporary program
of Federal Supplemental Compensation (FSC that
provides additional weeks of unemployment benefits
to those who have used up all their weeks of
regular and, where available, extended benefits.
originally enacted to last through March 31, 1983,
the program has twice been amended. At the
President's request, the program was extended
through September 1983 in_the Social Security Act
amendment of 1983.
a) FSC as enacted provided up to 10 weeks of
additional benefits, but as amended it paid up
to 16 weeks. A six-month extension of the
program until September 30, 1983 provides up to
14 weeks of additional benefits for new
cla a ts, and up to 10 more weeks to those who
had used up all their FSC or were already
collecting it on March 31, 1983.
b) The number of weeks available varies by state
depending on the level of unemployment and
whether the state has paid or is paying extended
benfits.
* To supplement unemployment assistance over the
short-term, President Reagan proposed a bi-partisan
jobs bill with three major provisions.
- $4.4 billion in accelerated funding of construction
projects already in the budget, intended to be
spent in FY 1983.
- $5.3 billion to finance unemployment insurance
benefits.
- $216 million for humanitarian assistance for the
unemployed.
* Congress enacted:
$4.4 billion in accelerated funding.
$5.3 billion for unemployment benefits.
$790 million in humanitarian assistance.
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The President's Proposals for FY 1984.
o Unemployment Compensation.
-- Provide outlays of $24.6 billion in 1984 -- $8.1
billion less than 1983.
o Job vouchers.
-- Provide an onion for FSC recipients to receive
assistance in securing work through a system of tax
credits to employers.
* Under the proposal, those eligible for FSC would have
the choice of receiving either the additional weeks
of unemployment compensation under FSC, or a set of
vouchers that would give anyone who hires them a tax
credit of equal value to the unemployment
.compensation that would otherwise be paid.
* The program would provide unemployment benefits from
April 1 through September 30, 1983, with tax credits
remaining available for jobs started by March 31,
1984.
* The estimated benefit outlays for this proposal are
$2.8 billion in 1983.
* The estimates of the tax revenue reduction for this
proposal are $453 million in 1984, and $97 million in
1985.
o Unemployment insurance tax receipts.
-- Permit the states to devote 2% of their unemployment
insurance tax receipts to training, job search, and
relocation of unemployment workers.
Justification.
o Smaller outlays for unemployment compensation.
-- The reduction in proposed outlays is based on an
expected decline in the unemployment rate from 10.2% in
FY 1983 to 9.3% in FY 1984.
o Job voucher.
-- Workers who elect the voucher plan would receive full
wages, rather than unemployment benefits that are
designed to replace a portion .(usually no more than
half) of lost wages.
-- The tax credit would give employers a strong incentive
to hire the long-term unemployed.
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-- The unemployed would increase their prospects for
long-term financial well-being and employment by
working rather than remaining unemployed.
o Unemployment tax receipts.
-- Permitting states to use a portion of unemployment tax
receipts for training, job search, and relocation will
more rapidly and effectively increase the employability
of those out of work than the payment of unemployment
benefits alone.
-- Moving people permanently off the unemployment rolls
and into private sector jobs will reduce long-term
federal spending.
-- Because state governments are closer to their own
unemployment problems, they can target assistance to
areas of greatest need.
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Questions and Answers.
o TAA phaseout. At a 'time when American workers are still
losing their jobs to imports, is it really fair to pahse
out TAA?
-- TAA has effectively been replaced by the Job Training
Partnership Act of 1982.
* JTPA consolidates federal efforts to retrain all
displaced workers, whether they have lost their jobs
because of imports of because of some other reason.
* The Administration has proposed spending $223 million
in FY 1984 to retrain displaced workers, more than
double the present amount.
* This is a much fairer approach to the problem, since
it does not treat workers displaced by imports as a
privileged class of unemployed; being out of work is
bad, regardless of the cause.
* Moreover, assistance can be made available faster,
since there is no need for a cumbersome bureaucratic
process to determine the cause of dislocation.
o Vouchers. Will the Administration's voucher plan do any
good?
-- Given the significant tax break, employers will have a
strong incentive to hire the long-term unemployed.
-- The Administration estimates that the plan could help
as many as 700,000 unemployed persons get jobs.
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History.
The United States has historically shown great concern
for its veterans, more so than many other nations. As early
as the first Indian wars, colonial legislatures voted
lifetime support for veterans who returned home unable to
support themselves because of wounds sustained in battle.
During the Revolutionary War, the Continental Congress
made it a national policy to provide pensions for disabled
veterans, and for the widows and orphans of soldiers and
sailors who died in battle.
Pensions and veterans care grew in. dramatic spurts
during the Civil War and World War I. In 1930, all
government activities pertaining to veterans were
consolidated in a single agency, the Veterans Aministration.
At that time, there were about 4.7 million veterans in
the United States. With the return of the draft during
World War II, the nation's population of potential
veteran-beneficiaries rose to 19 million.
To meet the needs of this greatly-enlarged population,
and to assist the many returning veterans in re-adjusting to
civilian life, Congress authorized a vocational
rehabilitation program for disabled veterans in 1943, and
passed the GI Bill in 1944. The latter provided educational
and vocational training benefits, home loan guarantees, and
other assistance. These benefits were continued and
expanded during the Korean and Vietnam conflicts.
o The Program.
-- Income security for veterans. In addition to Federal
income security programs for the general population,
such as social security, unemployment insurance, and
food stamps, several VA programs help certain veterans
and their survivors maintain their incomes when the
veteran is disabled, aged, or diseased.
* Service-connected compensation.
- Monthly compensation payments are provided to
veterans with disabilities resulting from military
service.
- The amount of the benefit depends on the degree to
which average earnings of individuals with a
particular disability are reduced.
- Payments are also made to survivors of veterans who
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150
die from service-connected injuries.
* Non-service-connected pensions.
- Pensions are provided to needy wartime-service
veterans who are 65 or older or who have become
.disabled subsequent to their military service.
- Survivors of wartime-service veterans may also
qualify for pension benefits based on financial
need. I
* Burial and other benefits.
- Families of deceased wartime veterans who are to be
buried in private cemetaries may receive an allow-
ance to apply toward the purchase of burial plots.
- Families of deceased veterans who were receiving
compensation or pensions also receive burial
benefits to assist in defraying funeral expenses.
* Insurance programs.
- The Veterans Administration offers life'insurance
for veterans.
Veterans education, training, and rehabilitation.
* The GI bill provides education benefits ranging
from college courses to vocational and on-the-job
training.
- These benefits help eligible veterans make the
transition from military to civilian life by
assisting them in obtaining the education they
might have received had they not entered military
service.
- Active duty servicepersons and widows and children
of veterans who have died or been totally disabled
in military service are also eligible for these
benefits.
* Individuals who entered military service after 1976
are eligible for the post-Vietnam-era education
program, which allows them to set aside $25 to S1OU
from their monthly pay to finance future education.
- These amounts are matched by the government on a
two-for-one basis and returned to them in education
payments after they are discharged.
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-- Hospital and medical care for veterans.
* The Veterans Administration provides hospital and
medical care to veterans by operating a nationwide
medical care system consisting of 172 hospitals, 226
outpatient clinics, 101 nursing homes, and 16
domiciliary facilities.
-- Veterans housing.
* VA mortgage loan guarantees and direct loan programs
assist veterans in buying homes.
o Coverage.
-- Since the first GI Bill became effective in 1944,
almost 19 million veterans have taken training under
some VA program; more than 8 million have been
instructed at college level.
* The number of persons training under VA educational
programs peaked in 1976 at 3.0 million.
* The 1982 figure was 906,000. '
-- The GI Bill also has made possible more than $200.0
billion in VA-guaranteed home loans for 10.9 million
World War II, Korean conflict, post-Korean, and
Vietnam-era veterans.
-- Nearly 2.3 million veterans currently receive some
level of disability compensation.
-- Total outlays for veterans benefits more than doubled
since the start of last decade -- from $8.7 billion in
FY 1970 to $23.9 billion in FY 1982.
-- Two-thirds of veterans expenditures go to benefit
programs, with nearly 30% devoted to medical programs.
o Administration Action to Date.
-- For FY 1982:
* President Carter proposed total outlays for veterans
benefits of $24.4 billion.
* President Reagan proposed $23.6 billion.
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* Congress appropriations resulted in outlays of
$23.9 billion.
During 1981, President Reagan signed into law
several bills that enlarged benefits to veterans,
including:
* Medical care for veterans with disabilities
resulting from exposure to agent orange and
low-level ionizing radiation.
* Cost-of-living increases for veterans being
compensated for service-connected disabilities.
* Two-year extension of eligibility for GI bill
training for educationally disadvantaged Vietnam
veterans.
-- For FY 1983:
* President Reagan proposed total outlays of $24.4
billion.
* Congressional appropriations should result in
outlays of $24.4 billion.
The President's Proposals for FY 1984.
o The Administration proposes total outlays of
$25.7 billion for veterans' benefits in FY 1984.
o Specific proposals:
-- A more than $600 million increase in hospital
and medical care for veterans.
-- A 5-1/2% cost-of-living (COLA) adjustment in
disability benefits,. effective April 1, 1984,
reflecting a six-month delay in the present practice
of providing COLAs each October.
A 5 1/2% increase in veterans' pensions, after a
six-month delay.
* The FY 1984 budget provides for a six-month
delay in Social Security COLA adjustments, from
June to December of each year.
* This proposal results in an identical COLA delay
for veterans pensions, since cost-of-living
adjustments for these programs are linked by
law.
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-- An increase in the veterans credit program.
* Federal loan guarantees for veterans will rise
to $19.5 billion in 1983 and $2U.8 billion in 1984
(up from $6.8 billion in 1982.)
Justification.
o Hospital and medical care.
-- The increased expenditures for medical care are
particularly necessary to meet the needs of
World War II-era veterans, the vast majority of
whom will reach age 65 during the 1980s.
-- Veterans hospitals must be improved and enlarged,
and hospital staffs expanded.
o FY 1984 COLA delay in disability pensions and benefits.
* These delays are, consistent with current government
efforts to delay increases or freeze spending
on most income-support programs across the board.
* With the dramatic reduction of inflation rates
under the Reagan A inistration, COLA increases
are far less urgent than they were in the days of
high inflation, so that veterans will not be
hurt by the COLA delay.
-- This policy will achieve budgetary restraint in the
most equitable way possible by restraining the growth
,of these programs while minimizing the effects of such
restraint on beneficiaries.
o Credit budget increase.
-- The increase in the credit budget for this program
is due almost entirely to an increase in demand
for home mortgage loan guarantees.
-- The anticipated continued decline in interest rates
should further this trend.
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Questions and Answers.
o Delayed Disability COLA. How can you justify reducing
benefits to veterans who served our country and suffered
permanent injuries during their time of service?
-- Benefits are not being reduced, and increases are only
being postponed by six months.
* It is important to keep in mind that this COLA is
not automatic, but subject to annual enactment by
Congress.
-- The COLA delay is identical to that being requested for
Social Security recipients.
-- The current low rate of inflation minimizes any adverse
effect the COLA delay may have on veterans.
o Pensions. Why can't veterans' pensions be exempt from the
Social Security COLA freeze, since so much of their income
is Social Security income that will also,be subject to
COLA delay?
-- The majority of beneficiaries under the pension
program are widows of veterans.
* Pensions are awarded to widows on the basis of
need.
* If a widow's income is below a certain level, she
qualifies for a pension.
-- Unless pension income and Social Security income are
simultaneously adusted for increases in the CPI, the
Social Security COLA would be counted as additional
income, and that could reduce some widows' pension
benefits, or drive them off the rolls entirely.
-- To preserve current pension benefits without a
structural change in the law, both the Social Security
and veterans .pension benefits must be delayed for an
identical period.
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History
In 1862, Congress enacted legislation creating the
Department of Agriculture. In 1889, the duties of the
Department were enlarged and it was made the eighth
executive department in the federal government.
The Department works to improve and maintain farm
income and to develop and expand markets abroad for
agricultural products. USDA also works to enhance the
environment and to maintain agricultural production capacity
by helping farmers protect the soil, water, forests and
other natural resources. Through inspection and grading
services, USDA safeguards and assures standards of quality
in the daily food supply.
o Major Programs.
-- Commodity Credit Corporation (CCC).
* Includes:
Non-recourse commodity loan program, which offers
loans to farmers on their production at the time of
harvest, and allows the farmer to deliver the
commodity to the government at the loan price if
the market price falls below that on which the loan
was based. Thus, the 'price is guaranteed for the
farmer. In FY 1973, total gross commodity loans
were $1.6 billion. In FY 1981, the level was $5.6
billion. And in FY 1983, it is estimated at $1
billion.
Tar et prices protection, which offers farmers
deficiency payments equal to an amount the actual
market price falls below the target price, with the
loan rate being the minimum price. Eligible crops
include wheat, corn, sorghum, oats, barley, rice,
and upland cotton. In FY 1973, there were no
deficiency payments. In FY 1981, the level was
zero as well. In FY 1983, it is estimated at $2.8
billion.
Production adjustment program require the farmer to
reduce planted acreage in return for the above loan
and target price protection. Set-aside, or acreage
reduction programs require farm reductions w thout
additional compensation. Land diversion programs
provide farmers cash payments in return for acreage
reductions. Payment-In-Kind (PIK) programs, begun
by this Admi,n strat on, provides farmers surplus
stocks instead of cash payments in return for
acreage reductions. In FY 1983, land diversion
payments (cash) are estimated to cost $1.1 billion.
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- Dairy-price support program purchases dairy
products from processors in cases of
overproduction, with processors guaranteeing the
price for producers. CCC dairy purchases totaled
$158 million in FY 1973. In FY 1981, the level was
$2.0 i on. And in FY 1983, the level is
estimated to be $2.3 billion.
- Export credit program provides loan guarantees and
direct loans intended for export sales that would
not have occurred without the federal credit. The
level of assistance for these programs was $1.0
billion in FY 1973. It was $1.5 billion in FY
1981. And in FY 1983, the level Is 5.2 billion.
* Cost.
- In FY 1973, CCC net budget outlays equaled $3.6
billion. In FY 1981, the net outlay level was
4.0 llion. And in FY 1983, the level is
estimate d at $21.2 billion -- a fivefold
increase in just two years.
-- Farmers Home Administration (FMHA).
* Provides credit for those in rural America who are
unable to get credit from other sources at reasonable
rates and terms.
* There are a number of different loan programs ranging
from loans for farm ownership and operating costs,
recovery from emergency natural disasters, and
community facility construction.
* In FY 1973, $3.8 billion in loans and grants was
provided for 319,000 farmers. In FY 1981, $13.9
billion helped 324,000 farmers. In FY 1983, 9.1
billion- is helping ,000 farmers.
-- Foreign Agricultural Service (FAS).
* Functions.
- Promotes market development for agricultural
exports through a network of counselors, attaches,
and trade officers stationed overseas.
- Operates CCC export credit program described above.
- Provides P.L. 480 assistance -- low-interest
long-term loans to foreign countries that consume
U. S. commodity exports -- and makes direct
donations of farm products in cases of disaster.
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In FY 1973, the cost of market development
functions was $29.8 million. In FY 1981, the level
was $64.6 million. And n FY 1983, the level is
$91.1 million -- a tripling over the decade, and
nearly a 50% increase in just two years.
Outlays for export credit programs are included in
the CCC budget.
- P.L. 480 outlays were $754 million in FY 1973. In
FY 1981 the net outlay level was 1.3 billion. And
in FY 1983, the level is estimated at .00 billion.
-- Federal Crop Insurance Corporation (FCIC).
* Provides All-Risk Crop Insurance for unavoidable
production losses due to any adverse weather
conditions including drought, excessive rain, hail,
winds, hurricanes, tornadoes and lightning, as well
as unavoidable losses due to insect infestation,
plant disease, floods, fires and earthquakes.
* The Federal Crop Insurance Act, passed by Congress in
1981, directed FCIC to expand this insurance program
with the intention of substituting it for disaster
programs in the near future. This expansion resulted
in a virtual doublin of the number of acres insured,
and resulted In a FY 1983 budget more than 8 times
larger than that of FY 1981.
* In FY 1973, the budget for this program was $15.6
million. By FY 1981, the level had increased to $64
million. And in FY 1983, administrative and
operational expenses for FCIC total $529.4 million.
o Total Costs.
-- In FY 1973, the gross program level -- the amount of
money spent directly to help farmers and agricultural
activities -- was $14.5 billion.
-- In FY 1981, the level was $33.4 billion, a more than
doubling in just eight years.
-- And in FY 1983, the level is $47.8 billion, an increase
of more than 40% in just two years.
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Administration Action to Date.
-- For FY 1982:
President Carter requested $28.3 billion.
* President Reagan requested $28.7 billion, $6 billion
of which was added in a supplemental appropriation
for CCC programs.
* Congress approved $29.6 billion, which includes the
$6 billion supplemental.
-- For FY 1983:
* President Reagan requested:
- Budget authority of $33.2 billion.
- Pro rams changes including the institution of a
variety of user fees.
* Congress approved:
- Budget authority of $33.8 billion.
- Program changes as requested by the Administration.
The President's Proposals for FY 1984.
o Commodity Credit Corporation (CCC).
-- Freeze target prices for wheat, feed grains, cotton and
rice at current levels rather than Increasing them
annually as current law mandates.
-- Implement the Payment-In-Kind (PIK) program, which was
announced by the Administration In January 1983.
This program provides farmers surplus commodities, in
the sum of 80-95% of their normal production, instead
of cash, in return for reducing production.
o Farmers Home Administration (FmHA).
-- Reduce spending for FmHA programs from the 1983 level
of $9.1 billion to $5.5 billion in 1984, primarily by
refocusing resources more directly for activities
appropriate in the agency's role as creditor of last
resort.
* Reduce housing loans from $3.3 billion in 1983 to
$300 million in 1984, primarily by replacing the
direct loan program with an $850 million block grant
program to be administered by the states.
* Reduce emergency disaster loans from the 1983 level
of $2.0 ion to i ion in 1984. These loans
are made to enable farmers to continue their
operations after experiencing natural disasters.
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* Eliminate loans for recreation, irrigation, drainage,
watershed, flood prevention, and resource
conservation and development.
* Increase o eratin loans from the 1983 level of $1.5
billion to $1.8 billion in 1984. Operating loans
enable family farmers to cover the costs associated
with planting their next crops. These loans may be
used to pay for equipment, livestock, feed, seed,
fertilizer and other farm operating needs.
o Foreign Agricultural Service (FAS).
-- Increase the program level from $81 million to $91
million in 1984, primarily for increased market
development activities.
o Federal Crop Insurance Corporation (FCIC).
-- Reduce budget authority from $529.4 million in 1983 to
the level of $473.9 million in 1984.
- Increase the appropriation for administration and
operating expenses for the nationwide insurance
program from the 1983 level of $236.2
million to $279 million in 1984.
- Increase the appropriation for the premium subsidy
program in the FCIC Fund from the 1983 level of
$115.6 million to $170 million in 1984.
- Request no additional appropriation for capital stock
beyond the current level of $400 million received
over the FY 1982-83 period.
Justification (General).
o Reduce federal spending.
-- The President's request for a total agriculture program
level of $40.6 billion for 1984, excluding food and
nutrition programs, is $13.3 billion less than the 1983
level.
o Place restraints on one of the fastest growing areas of
the budget.
-- Federal agricultural loan programs have skyrocketed.
* Net outlays for CCC have grown from $2.8 billion in
1980 to $12 billion in 1982, a three-fold increase in
just two years. Net outlays for 1983 are projected
to reach $21 billion, a 75% rise in a single year.
* FmHA outlays have grown from $3.6 billion in 1974 to
$13.9 billion in 1981, a three-fold increase in seven
years.
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-- The President's proposal would reduce CCC outlays to
their 1982 level of $12 billion, and cut FmHA outlays
to $5.5 billion.
o Promote more efficient, free-market agriculture.
-- Since 1933, the government's role has been to
moderate extreme movements in farm prices'and income
which occur because of uncontrollable factors such as
weather and general economic conditions. But
government intervention has become so great as to be
harmful to farmers and taxpayers alike.
* When price support levels are set too high, as they
presently are, farmers are given an incentive to
increase production beyond what the market would
bear.
* Farmers abroad are also encouraged to increase
production because foreign grain exporting countries
set their prices based largely on U.S. prices.
* With the resulting supply exceeding demand so
greatly, lower prices are paid for the commodities.
* These excessively lower prices, which are not in the
farmers' financial best interest, typically lead to
clamor for even more government intervention and even
greater cost to the taxpayers.
-- The President's proposals, by reducing the extent to
which Federal agricultural price supports interfere
with the market, would improve farmer efficiency and
long-term profitability while holding down government
costs.
Justification (Specific).
o Commodity Credit Corporation.
-- Freezing price supports.
* Net outlays for price support programs at CCC have
grown out of hand, increasing from $2.8 billion in
1980 and $12 billion in 1982.
* Holding target price levels for wheat, feed grains,
cotton and rice in 1984 would reduce subsidy payments
and still give producers a fair rate of return.
- The 1981 farm bill assumed a 22-30% cumulative
increase in inflation between 1981 and 1985.
- Production costs now are expected to rise only 15%
over that period.
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- Therefore, a freeze of price supports at the 1983
level would be sufficient to cover the projected
increases in farm production costs.
The PIK program will provide substantial benefits to
the taxpayers as well as farmers.
* Taxpayers will benefit because:
- Substitution of commodity transfers for cash
payments will significantly reduce federal outlays
that would otherwise result from the price support
program.
- Distribution of government-held commodities will
reduce storage costs.
* Farmers will benefit because:
- Their receipt of commodities in the sum of 80-95%
of their normal production will allow them to sell
for profit in the marketplace with significantly
reduced production costs.
- The ability to conserve their lands for one or two
crop seasons will allow farmers to repair and
nourish them.
- By reducing the great supply of commodity stocks,
the PIK program provides the basis for future price
recovery.
* Export credit programs would be kept at a minimum for
two major reasons:
- The Administration anticipates that the world
economy will in recovery by 1984, making a less
ambitious program appropriate.
- The Administration is emphasizing loan guarantees
rather than direct loans. No federal outlays will
be incurred under the export credit guarantee
program unless claims must be paid by CCC to
private banks that cannot obtain scheduled payments
for credit they have extended to foreign
participants in the program.
o Farmers Home Administration.
-- The portfolio of outstanding loans and loan guarantees
held by FmHA has increased from less than $20 billion
in 1976 to over $60 billion in 1983 -- a tripling in
seven years. The economy can no longer sustain such an
outstanding loan burden.
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-- The projected reductions for 1984 in emergency disaster
loans reflect legislation approved in 1980 that
gradually phases out all emergency loans in excess of
the amount of the actual loss, and a proposed
legislative change to restrict emergency' disaster loans
in areas where Federal Crop Insurance is generally
available.
* As the FCIC expands its crop insurance coverage,
the emergency loan program at FmHA can be reduced
correspondingly.
-- The reduction in spending for housing loans reflects
the Administration's replacement of direct loans with a
block grant to the states.
* The block grant gives the states authorit to provide
housing assistance to very low Income families In
rural areas either through grants or subsidized
loans.
* It also provides flexibility for the states to
structure housing assistance to meet the specific
needs of their residents.
o Foreign Agricultural Service.
-- The increase of $10 million will offset overseas
inflationary costs and allow for real growth In foreign
market development.
* Activities will be specifically targeted to
developing nations with the greatest potential for
growth in agricultural trade.
o Federal Crop Insurance Corporation.
-- Increasing the appropriation for administrative and
operating expenses by $42.8 million: This increase is
required for continued growth and expansion of the
nationwide insurance program.
-- Increase the FY 1984 appropriation for the premium
subsidy program in the FCIC Fund by $54.4 m 13 lio
This level reflects the Administration's expectation
that farmer participation in the crop insurance program
will increase through crop year 1983.
-- Requesting no additional capital stock beyond the
current level: The 1983 appropriation is sufficient to
provide for indemnity payments and other corporation
expenses during .
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Questions and Answers
o Fairness of budget cuts. How can we afford to cut the
agriculture budget by one-third when farm bankruptcies are
at post-Depression highs?
-- The overall farm program budget is not being cut. The
cost of the farm entitlement programs is ex ected to
define from the all-time high of $21 billion in FY
1983.
-- Most important, however, farm operating loans will be
increased by $350 million.
* Farm operating loans are most critical to farmers as
a needed source of capital to continue their
production.
* With the proposed increase, more than 4,000 more
loans will be made in 1984 than in 1983.
-- The Administration is rescheduling the debts of farmer
borrowers who have shown good faith efforts to repay
their loans and have good management practices.
* Most operating loans are repaid over a period of 1 to
7 years.
* The government is now allowing individual farmers to
make lower payments over a period of up to 7
additional years and/or to be delinquent with USDA
approval without foreclosure on their loans.
-- The Administration has added 646 more staff ears,in.
1983 so farmers can receive more individualized
attention and counselling.
o Price su orts. If price supports are frozen, how will
farmers be able to make ends meet?
-- The Agriculture and Food Act of 1981 assumed escalating
inflation through 1984 and 1985. But since inflation
has not been increasing as rapidly as anticipated, a
freeze of price supports at the 1983 levels is
appropriate.
-- Supports at 1983 prices will still cover the
projected increases in farm production costs in 1984.
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o Benefits of the PIK pro ram. Isn't the PIK program just
an easy way out of providing real help to the farmers?
-- PIK offers both long-term and short-term benefits to
U. S. farmers.
* Short-term
- The PIK program compensates farmers for not growing
more crops. By giving them 80-95% of the amount of
the commodity they would normally have grown, the
farmers are net gainers because they have incurred
no production costs.
* Long-term
- One of the greatest factors limiting the U.S.
farmer's ability to earn a reasonable profit is the
large surplus of commodities that is far more than
adequate to meet the nation's food demands.
- When supply so greatly exceeds demand, prices are
always low, unless government intervenes.
- The PIK program will help reduce huge
government-held surpluses, and thereby increase
long-term agricultural profitability.
o Effects of loan reductions. With funding for FmHA credit
programs cut in , won t fewer farmers be aided by loan
programs?
-- Farmers will not be hurt by cuts in regular farm loan
programs because no cuts will take place The
fund n level for these programs, which are primarily
for farm operating costs, will actually be increased in
1984, allowing a rise in the number of loans from an
estimated 61,735 n 1983 to about 67L455 In 1984.
-- Though the number of farmers served by the FmHA
emergency disaster loan program will decrease by about
9,000 in 1984, coverage by the Federal Crop Insurance
Corporation will more than adequately make up for
Farmers Home Administration reductions.
* The number of FCIC county programs will increase by
about 900 In 1984.
* The amount of insurance in force will increase from
$6.1 billion in 1983 to $11 billion in 1984.
* The number of insured acreage will almost double from
44 million in 1983 to 85.2 million In 1984,
representing an increase in participation from 18% to
30%.
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History.
The Commerce Department and other federal agencies
offer a variety of programs to provide counselling to
American businesses that wish to sell abroad. The budgetary
impact of these programs is not significant.
The direct and indirect subsidy of U.S. exports is
significant, however. Federal subsidies for this purpose
are dispensed through the Export-Import Bank (Eximbank),
which was established in 1934 and chartered as an
independent government agency in 1945.
The Eximbank was founded largely as a response to
predatory credit practices by the governments of foreign
exporters. These governments often try to make their
exports more attractive to buyers by offering below-market
financing to pay for them. The Eximbank is a way of meeting
this unfair competition head-on.
o The Program.
-- The Eximbank makes low-interest loans to foreign
firms and governments that buy American goods and
services.
-- It also insures and guarantees repayment of loans made
to foreign purchsers by other lending institutions.
o Coverage.
-- Eximbank's direct loans finance less than 2% of U.S.
exports of goods and services.
-- Eximbank's direct loans and loan guarantees combined
assist only about 7% of U.S. exports of goods and
services.
-- Half of Eximbank's direct loans have gone to
seven companies: Boeing, Westinghouse, McDonnell
Douglas, Combustion Engineering, Lockheed, Western
Electric, and General Electric.
o Costs.
-- The U.S. Treasury provided Eximbank with 41 billion
in seed capital when the bank was chartered in 1945.
* This money has been lent and repaid with interest
on many occasions since then, thus increasing
Eximbank's available capital.
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Eximbank receives no annual appropriations from
Congress; instead the bank is permitted to borrow
from the U.S. Treasury up to limits prescribed
by Congress through the appropriations process.
* Eximbank was intended to be self-sustaining. For
years the Bank s internal policy was to operate in
the black by lending the money it borrows from the
Treasury at a rate higher than the rate at which it
borrows, but lower than the rate charged by
commercial banks.
* Unfortunately, because of rising interest rates, the
bank since 1966 has been lending money at a lower
rate than the rate it often is charged by the
Treasury.
* In 1982, it operated at loss for the first time
since it was founded. The amount of the loss
was approximately $160 million.
The real cost of the Eximbank, however, is perhaps
more accurately measured by the amount of money it
siphons off from the capital pool in the form of
loans that would not be made if it did not exist.
* In FY 1970, Eximbank made direct and indirect loans
of $2.2 billion, and issued loan guarantees of
$1.8 billion.
* In FY 1980, Eximbank made direct loans of $4.4
billion, and issued loan guarantees of $7.9
billion -- a tripling in just ten years.
o Administration Action to Date.
For FY 1982:
* President Carter proposed funding levels for Eximbank
of $5.0 billion for direct loans and $9.4 billion for
loan guarantees -- a nearly six-fold increase over
1977 levels.
* President Reagan proposed funding for Eximbank of
of $4.4 billion for direct loans and $8.2 billion for
loan guarantees.
* Congress approved $4.4 billion for direct
loans and $9.2 billion for loan guarantees.
-- For FY 1983:
* President Reagan proposed to reduce direct lending by
$570 million to $3.8 billion, and hold loan guarantee
authorizations to $8 billion.
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* Continuing resolutions passed by Congress maintained
Eximbank authorizations at FY 1982 levels.
o The President's Proposals for FY 1984.
-- The Administration proposes to reduce the limit on
direct loans from $4.4 billion to $3.8 billion in FY
1984.
* The President will request supplemental authorization
for direct loans of up to $2.7 billion if necessary
to meet officially-subsidized foreign competition.
-- The Administration proposes to raise the limit on loan
guarantees by 11% in FY 1984, from $9 to $10 billion.
Justification.
o These proposals reflect recent political and economic
developments that have altered the evirornnent in which
Eximbank operates.
-- During the past year, the Administration succeeded
in getting other industrialized nations to reduce
export subsidies; Eximbank's direct loan program
is now competitive with foreign programs.
* Lower interest rates will shift demand from direct
loans to loan guarantees.
* The sharp decline in interest rates has reduced the
need for Eximbank to offer direct loans at below-
market rates.
* Rather than having to ask for direct loans at
below-market rates, exporters will instead be
able to ask Eximbank to guarantee market-rate loans
obtained from private lending institutions, because
the lower interest rates will now make these loans
affordable.
* The loan guarantee increase proposed by the
Administration is designed to accomodate this
greater demand.
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Questions and Answers
o Protectionism. Loan guarantees, no less than direct
loans, are government subsidies to favored businesses.
Shouldn't the U.S. Government set an example for the rest
of the world and put a stop to protectionist devices of
this kind.
-- The Administration is doing what it can to encourage
all nations to gradually eliminate export subsidies.
* The success it has already achieved in this area has
in part been based on our willingness to maintain an
Eximbank program.
* In other words, once we show foreign governments
that we will maintain a vigorous export finance
program, they may be more willing to cooperate
with us in phasing these programs out.
-- Until we reach the point where all countries agree not
to subsidize exports, we must be prepared to do the
same to protect our world market share.
o Welfare for the rich. Isn't the Eximbank program another
case of "welfare for the rich," since half of Eximbank's
direct loans have gone to seven giant corporations?
-- Many small companies benefit indirectly from Eximbank
loans.
* Boeing, for example, has 3,500 subcontractors in 44
states.
-- More than 800 small companies benefit directly from
Eximbank programs.
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Questions and Answers.
o The capital crunch. If the federal government no longer
provides direct loans, where will small businesses raise
the capital they need to get started and to stay in
operation?
-- 99.7% of small businesses do not get SBA? direct
loans. The overwhelming majority of small businesses
in this country succeed or fail without so much as a
dime's worth of federal assistance.
-- Some small business people arrange their own bank
loans, but many rely on savings or on loans from
friends and family to raise their working capital.
-- The SBA will continue to provide significant amounts
of loan guarantees and , other. assistance,. especially to
disadvantaged firms.
o Government isn't doing enough. Given the present state
of the economy, shouldn t the federal government be doing
more to help small business?
-- The economic policies pursued by the Reagan
Administration are already doing more for small
business than any direct aid program could do.
-- Tax reform.
* The personal income tax rate cuts are enormously
beneficial to small business.
- The vast majority of small firms are sole
proprietorships or partnerships.
- That means that all the money the owners make
through the business is taxed as personal income.
- The 25% Reagan tax rate cut therefore allows small
business people to keep significantly more of their
earnings than they would otherwise have been able
to-do.
* The provision to allow expensing of up to $5,000 in
investment each year will further help small business
raise capital.
* The reductions in estate taxes allows
family businesses to be passed from one generation
to the next, instead of having to be sold for
taxes when the owner dies.
-- Regulatory reform.
* Reducing red tape is especially helpful to small
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History.
The need to mobilize scientific and industrial
resources for World War II, and the desire to avoid being
outdone by Soviet advancements such as the launch of Sputnik
in 1957, were prime catalysts in leading U. S. policymakers
to devote greater attention and resources to scientific and'.
technological research and development. _ .
Today, some 23 federal departments and agencies are
involved in various facets of research.and development
(R&D).
o Programs.
More than nine of ten R&D dollars is obligated by five key
agencies:
-- Department of Defense (DOD).
* Supports R&D efforts largely related to advanced
strategic and tactical military systems, basic
research on such areas as materials and
microelectronics, and advanced technology
development in such areas as high-speed integrated
circuits.
* Obligations for the conduct of R&D efforts at DOD are
$23.2 billion in FY 1983.
-- Department of Energy (DOE).
* Supports the National Defense Program to develop and
test nuclear weapons, the General Science Program of
basic research in high energy physics and nuclear
sciences, and an Energy Program focusing on long-term
R&D.
* Obligations for the conduct of R&D efforts at DOE
total $4.7 billion in FY 1983.
-- Department of Health and Human Services (HHS).
* Primarily conducts basic research in the biomedical
sciences through the National Institutes of Health
(NIH). Other parts of HHS conducting research.are
the Alcohol, Drug Abuse and Mental Health
Administration; the Food and Drug Administration; the
Centers for Disease Control; and agencies dealing
with human services such as child abuse and quality
of life for the elderly.
* HHS R&D obligations total $4.3 billion in FY 1983,
$3.8 billion of which is devoted to NIH.
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171
National Aeronautics and Space Administration (NASA).
* Pursues a vigorous program of space and planetar
science, applications, and advanced technology for
space technology and future aircraft.
* Obligations are $2.5 billion in FY 1983.
National Science Foundation (NSF).
* Supports basic research in engineering and the
mathematical, physical and biological sciences to
advance scientific knowledge.
* R&D obligations at NSF are slightly more. than $1
billion in FY 1983.
Others.
* Several other agencies conduct or support R&D in
various areas. se agencies include -- in order of
R&D budget obligations -- the Departments of
Agriculture, Transportation, Interior, Commerce, the
Environmental Protection Agency, Nuclear Regulatory
Commission, Veterans Administration, Agency for
International Development and others.
* R&D obligations for these agencies total $3.1 billion
in FY 1983.
In FY 1970, federal obligations for the conduct of
R&D totaled $15.3 billion.
In FY 1980, federal obligations
totaled $31.7 billion.
-- In FY 1983, the level is estimated at $38.9 billion.
o Administration action to date.
-- Budgets for FY 1982 and 1983 shifted priorities for
types of R&D supported by the federal government.
* Federal support for basic research in areas with
long-term potential for technological developments
and industrial applications has been progressively
increased.
* Federal involvement in near-term development,
demonstration and commercialization projects for
civilian technologies was progressively reduced. The
Administration considered this type of work --
particularly in the energy area -to be more
appropriately done by the private sector.
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* President Carter requested $38.6 billion for the
conduct of R&D.
* President Reagan requested $37.8 billion.
* Congress approved $36.4 billion.
-- For FY 1983:
* President Reagan requested $38.9 billion.
* Congress approved $38.9 billion.
The President's Proposals for FY 1984.
o Total federal R&D funding.
-- The President proposes to increase federal R&D funding
by $6.9 billion to $47.8 bI on, an 18% increase.
-- This funding increase will enable the federal
government to boost support for basic research by 10%,
from $6 billion in 1983 to $6.6 billion In 4.
o Specific funding levels.
Department of Defense (DOD).
* Increase obligations for the conduct of R&D to $29.9
billion, an amount $6.7 billion greater than in FY
1983.
Department of Energy (DOE).
* Hold obligations at $4.7 billion, an amount about
equal to the FY 1983 level.
Department of Health and Human Services (HHS).
* Increase obligations to $4.4 billion, an amount $100
million greater than in -F-Y-178-T-.
National Aeronautics and Space Administration (NASA).
* Reduce obligations to $2.5 billion, an amount $33
million less than in FY 1983.
National Science Foundation (NSF).
* Increase obligations to $1.2 billion, an amount $180
million greater than FY 1983.
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Justification (General).
o Provide adequate support for research and development
activities, especially basic research efforts, which serve
either of two critical needs:
-- Federal government needs, such as a strong national
defense, where the principal user of the R&D is the
federal government.
-- Broad national needs, such as agricultural and health
research and the pursuit of long-term energy
technologies, to help assure the strength of the
economy and the quality of life for all people.
o Focus federal resources on appropriate R&D activities and
away from those that are better undertaken by the private
sector.
-- DOE provides a clear example:
* Obligations have been more sharply directed toward
programs where there is clear need for federal
involvement, including the pursuit of se ected energy
trolog les such as magnetic fusion. These
programs are long-term, high-risk efforts that are
not economically feasible for industry to undertake.
* At the same time, federal obligations for near term
solar and other renewable energy technology programs
are being eliminated because a solid technology base
has been developed, making it possible for Industry
to offer these alternative energy sources in the
marketplace.
Justification (Specific).
o DOD.
-- The Defense R&D program is oriented toward the
development of strategic and tactical weapons.
* The Technology Base and Advanced Technolo
Development programs will continue to Investigate
promising new technologies. Efforts with Very High
Speed Integrated Circuits, for example, are necessary
for the further miniaturization of microelectronic
devices.
* Strategic Pro rams will continue to emphasise
advanced ballistic missiles, ballistic missile
defense, an advanced bomber, and an anti-satellite
system.
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* Tactical Programs are necessary to improve the
capability of general purpose and theatre nuclear
forces and allow the rapid deployment of these
forces.
- The Army is working on upgrades to the M-1 tank and
Bradley Fighting Vehicle System and is increasing
its efforts on remotely piloted vehicles.
- The Air Force is developing a deep strike
interdiction version of an existing fighter
aircraft, a more reliable fighter engine and an
air-to-air missile.
- The Navy is developing a lightweight anti-submarine
torpedo, a new longer-range anti-submarine missle
and a new destroyer. Upgrades of current systems
to improve detection, tracking and targeting are
necessary to increase the capability of major
systems now in production.
-- More than 50% of new obligations for basic research are
earmarked,to initiate a number of major new projects
that are necessary to improve the nation's capacity for
basic research. These new projects include:
* Building a linear colliding beam accelerator to
demonstrate the feasibility of new technT75-es for
very high energy electron-positron collisions --
critical to developing such unlimited-potential
energy technologies as nuclear fusion.
* Initiation of a national advanced materials research
center to improve the n ages among academic,
national laboratory, and industry scientists for the
future advancement of high-technology industries.
-- The $109 million reduction for space and terrestrial
applications reflects decreasing obligations In two
major projects that are nearing completion:
* LANDSAT D, the fourth in the series of experimental
Earth observation satellites, was launched
successfully in July 1982.
* The Earth Radiation Budget Experiment (ERBE)
satellite will be launched by the Space Shuttle in
1984.
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-- Now that the Space Shuttle is operational, it is no
longer appropriate to classify all NASA pr rams as
R&D; therefore R&D obligations for NASA exclude Space
Shuttle production and operations, track n~ data
acquisition activities, and related institutional
support.
-- More than 87% of the Department's health-related R&D
funds, and more than 93% of the Department's basic
research funds, will be expended by the National
Institutes of Health. These funds will allow for
biomedical research necessary to improve the nation's
capabilities for the prevention, diagnosis and
treatment of disease.
-- Among the most significant activities to be undertaken
by NIH are bas c research on cancer chemoprevention,
including studies of nutritional factors; diagnostic
imaging; herpes simplex virus vaccine; the acquired
immunodeficiency syndrome (AIDS); and the efficacy of
interferon for controlling the frequency and severity
of multiple sclerosis.
-- The Foundation's support for basic research is
particularly important because this research
complements the basic research programs of other
agencies and assists n a anc ng federal support for
promising research across all fields of science.and
engineering.
-- The 17% increase in NSF obligations for the conduct of
R&D W11:
* Provide emphasis on disciplines such as mathematics,
materials science and electrical, chemical and
computer engineering that can make important
contributions to the long-term competitiveness of the
U. S. economy, particularly In high technology
dependent industries.
* Enhance research productivity by providing for the
upgrading of research instrumentation, primarily on
university campuses. One of the major problems today
is the growing obsolescence of research
instrumentation at the universities.
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Questions and Answers.
o Reductions in near-term R&D. How does the Administration
justify reducing obligations for near-term R&D and
demonstration programs?
-- It is the private sector, not the federal government,
that has the expertise and capability to identify, fund
and oversee the advancement of new technologies and
bring them into the marketplace.
-- The government's role is primarily to create an
economic climate conducive to private investments.
This can be accomplished through such measures as tax
incentives, reductions in the regulatory burden, and
clear delineation of federal government and private
sector roles.
o Encouragement for private efforts. What has the
Administration done to encourage more private sector
involvement?
-- Tax incentives.
* The Economic Recovery Tax Act (ERTA) provides for a
25% tax credit for businesses that spend more on R&D
than they did in each of three previous years on R&D.
-- Clarifying anti-trust policies.
* The Administration is promoting private sector
arrangements for cooperative R&D ventures, such as
limited research partnerships (LRP), which allow
companies to pool their funds and benefit jointly
from the results of the research conducted by
private, federal or university labs without risk of
violating antitrust laws.
o Result of Administration's efforts. What has been the
outcome of the Administration's efforts to spur more
private sector involvement in R&D?
-- An NSF survey of major companies, published in
September 1982, indicated that total industry spending
for R&D:
* In 1982, would be 10% above the level of the previous
year.
* In 1983, would be 8% above the 1982 level.
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-- These estimates are thought to be low for two reasons:
* At the time' of the survey, companies were not sure of
the impact of the Administration's tax incentives on
their own R&D budgets; now they have a better idea of
the favorable effect.
* The economy is recovering faster than expected, which
should further increase the level of industry R&D
efforts.
o Military vs. civilian. Why is R&D,.fqr defen,se ,increasing
sharply without a corresponding increase'for civilian
R&D? With the intense high technology competition from
other countries, shouldn't a stronger emphasis be provided
on direct federal support for civilian R&D (e.g., in
electronics and transportation)?
-- Defense R&D is increasing because the U.S. has
underinvested in this area for more than 20 years.
TYiere-is grat strategic importance in maintaining
technological advantage over potential adversaries.
* Defense is'a federal government responsibility and
DOD is the direct user of the results of R&D.
-- For civilian R&D to meet national needs, the federal
government has two main responsibilities.
* It should provide a climate for technological
innovation that encourages private sector R&D
investment.
- The Administration is fulfilling this-
responsibility primarily by reducing government
spending growth, regulation and tax rates.
- Thus, the Administration's R&D policy is part of
its overall economic policy.
- The Administration is also encouraging greater
cooperation among government, academia, and
industry researchers.
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* The government should focus support on areas where
there is substantial prospect for significant
economic gain to the nation, but where the private
sector is unlikely to invest adequately because the
benefits, in large measure, are not immediately
"appropriable" by individual firms.
Thus, for example, the federal government supports
basic research across all scientific disciplines
but limits is spending on technology development
to technologies requiring a long period of initial
development, such as fusion power, where the r sk
is high but the payoff to the nation is potentially
large.
- This strategy is reflected in funding for R&D in
the FY 1984 budget.
o Health R&D. Why do the R&D programs of the National
Institutes of Health receive only a modest 2% increase in
1984.
-- The programs of NIH have increased significantly in
recent years.
* Between 1970 and 1980, they almost doubled -- In
constant dollars.
* Total growth between 1982 and 1984 is estimated atl2%
-- again, in constant dollars.
* NIH now provides more than one-third of the total
federal support for basic research.
-- A decision was made to emphasize the support of basic
research in the physical sciences and engineeiing in
1984 because advances in these fields are key to
long-term economic growth.
-- Still, health and biomedical research, chiefly in NIH
programs, remain the largest category of non-defense
R&D.
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History.
The federal government had no comprehensive small
business program until 1953, when Congress created the Small
Business Administration (SBA). The SBA was first
established on a temporary basis, and was made permanent
when Congress passed the Small Business Investment Act of
1958.
The agency performs a variety of advocacy functions on
behalf of small business, including identifying and
analyzing small business problems. In terms of budget
considerations, it provides direct loans and loan guarantees
to assist small firms. It also provides subsidized loans to
individuals and small businesses that are the victims of
physical disasters, and offers special assistance to firms
headed by handicapped persons, members of minority groups,
other disadvantaged individuals, and women. The agency also
helps small business obtain a fair share of federal
government contracts.
Another small business program, targetted specifically
to members of minority groups, is the Minority Business
Development Agency (MBDA), which is administered. by the
Departemnt of Commerce. The MBDA was created by President
Nixon in 1969.
o Programs.
-- The Small Business Investment Act defines a small
business as one that is independently owned or
controlled.
* In determining how "small" a small business must be
to qualify for assistance, the SBA relies on specific
criteria for different industries and different
programs.
In the case of the retail industry, for example,
a firm with less than $7.5 million in sales is
considered a "small" business.
- In the case of the wholesale industry, the cutoff
point for SBA assistance is $22 million in
sales.
- In the case of a manufacturing concern, "small" is
defined as having 250 or fewer employees, although
in certain cases the figure is as large as 1500
employees.
-- The SBA offers loan assistance in the form of direct
loans and loan guarantees.
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* In recent years, about 90% of-SBA loan assistance has
been in the form of loan guarantees.
If a small business owner is without independent
means, and cannot arrange a loan from a private
bank, the SBA may assist him by, in effect, co-
signing the loan.
* If a small business owner is unable to arrange a
guaranteed loan, the SBA may lend him the money
directly, if the funds are available.
-- Other forms of SBA assistance include:
* 100% guarantee of state.pollution control
bonds, the proceeds of which are used to enable
small businesses to acquire pollution control
equipment.
* 90% guarantee of losses incurred by surety
companies on bid, payment, or performance
bonds that are issued to small contractors.
* Physical disaster loans to rehabilitate
or replace damaged homes and businesses.
-- SBICS and MESBICS:
* The Small Business Investment Company program (SBIC),
which operates under the SBA, is a venture captial
program sponsored by the federal government.
- SBICs are private investment companies, licensed
by the SBA, that help finance small companies.
- The SBA assists SBICs by guaranteeing the sale of
their debentures, which are purchased by the
Federal Financing Bank.
These notes have terms of 3, 5, 7, or 10 years,
must pay interest every six months, and must be
repaid in full on maturity.
* A specialized type of SBIC is the Section 301(d)
SBIC (popularly called MESBIC), which provides
assistance to small firms owned by socially or
economically disadvantaged persons.
- Membership in a minority group is only one of
a number of factors used in determining if an
applicant is "disadvantaged."
-- The SBA's 8(a) Program.
* This program is designed to channel non-competitive
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federal contracts to small businesses, owned by
members of socially and economically disadvantaged
groups.
* Program participants receive management, technical
marketing, and financial aid.
-- The Minority Business Development Agency contracts with
public and private organizations to provide management
and technical assistance to minority firms in 95
Standard Metropolitan Statistical Areas (SMSAs).
o Coverage.
-- In FY 1960, SBA made 3,325 direct loans and 382
guaranteed loans.
-- In FY 1970, SBA made 6,391 direct loans and 8,373
guaranteed loans.
-- In FY 1980, SBA made 6,586 direct loans and 24,933
guaranteed loans.
* 6,033, or approximately one-fifth of the total 31,519
loans, were made to members of minority groups.
-- As of October 1, 1982, SBA had a total of 147,501
direct and guaranteed loans outstanding.
* This means that the agency is providing financial
assistance to less than 1% of this nation's 16.5
million all businesses.
* SBA is also providing financial assistance to less
than 2% of the nation's minority businesses..
o Costs.
-- When an SBA loan is repaid, the money can be lent to
another borrower. The government loses money on
SBA loans only when the borrower of a direct or
guaranteed loan defaults on the payments.
These losses, combined with the annual operating
expenses and interest payments of SBA, are the direct
federal costs.
-- A more relevant measure of the growth of the SBA
program is the increase in program level, or the annual
ceiling that Congress puts on the dollar amount of
direct loans and loan guarantees that the SBA is
permitted to make.
* In FY 1960, the ceiling for SBA direct business loans
totaled $138 million; for guaranteed loans it was
$11 million.
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182
* In FY 1970, the ceiling for direct loans was $179
m_Ylli,on; for guaranteed loans it was $378 million.
* In FY 1980, direct loans totaled $392.9 million;
guaranteed loans, $3.2 billion -- a more than
doubling in the first case, and a more than sevenfold
increase in the'second case, over the last decade.
-- The cost of the MBDA is reflected by its annual
budget outlays; in FY 1980, these were nearly
$56 million.
o Administration Action to Date.
-- For FY '1981:
* SBA.
- President Carter requested $346 million for di-
rect loans and $4.2 billion in loan guarantees.
- President Reagan requested $304 million for di-
direct loans and $3.4 billion in loan guarantees.
- Congress approved,$367 million for direct loans
and $4.5 billion in loan guarantees.
- President Carter proposed increasing the
MBDA's budget to $59 million.
- President Reagan proposed.a 5% cut in MBDA's
budget from its FY 1980 level.
- Congress authorized $60 million in 1981.
-- For FY 1982:
* SBA.
President Carter requested $346 million for direct
loans and $4.2 billion for loan guarantees.
The Reagan Administration requested $260 million
in direct loans and $3.2 billion in loan gurantees,
about a 25% reduction from previous funding levels.
- Congress approved $225 million in direct loans and
$3.0 billion in loan guarantees.
- In addition, the Reagan Administration secured the
following reforms of the SBA program through the
omnibus Budget Reconciliation Act of 1981:
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a) Increased SBA average direct loan interest
rates to the current rate charged the federal
government when it borrows.
b) Provided that the SBA must guarantee 90% of a
loan of $100,000 or less. (For larger amounts,
SBA could guarantee 70% to 90%).
* MBDA.
- President Carter proposed outlays of $62 million.
- President Reagan requested outlays of $57 million.
- Congress approved outlays of $49 million.
* Small business share of R&D.
- In July 1982, Congress passed the Small Business
Innovation and Research Act, which sets aside a
portion federal agencies' research and development
budgets for contracts to be awarded to small firms.,
- Small businesses will receive $45 million in
federal assistance as a result of this legislation
in FY 1984, and up to $500 million by 1989.
-- For FY 1983:
President Reagan proposed to eliminate direct
loans, continue to provide loan guarantees at the
level of $2.7 billion, and continue the SBIC/MESBIC
programs.
Congress voted to continue direct loans at a lower
level ($260 million for new loans of which $50
million was added in the recently enacted "Jobs
Bill"), to provide loan guarantees at a level of
$3.3 billion, and to continue the SBIC/MESBIC
program.
- President Reagan proposed total outlays of $60
million.
- Congress approved this level.
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The President's Proposals for FY 1984.
o SBA credit assistance.
-- The Administration proposes to continue its policy of
phasing out subsidized direct loans, except for
$41 million to purchase the debentures of MESBICS.
-- In 1984, the President proposes that 98% of SBA's
credit assistance will be in the form of loan
guarantees.
* The guaranteed business loan program will be
maintained at FY 1983 proposed levels.
* The proposed total guaranteed loan business
assistance is $2.8 billion ($2.65 billion in
guaranteed business loans, and $150 million to
guarantee pollution control bonds.)
* SBA loan guarantees will be.gradually reduced
after 1984, to $1.2 billion in 1987.
-- The President proposes that the private sector bear
a greater portion of the risk for guaranteed loans.
* Currently, the SBA guarantees up to 90% of private
loans up to $500,000.
* The Administration is proposing to reduce that to
7U% for loans to members of non-disadvantaged
groups, so the private lender will bear 30% of the
risk.
* SBA has implemented a pilot program where SBA will
guarantee 75% of loans that are processed solely by
the banks.
o Minority business assistance.
-- Minority business assistance provided by the
Department of Commerce and SBA is proposed to continue
at the 1983 level of over $100 million.
-- SBA's 8(a) Program.
* The FY 1984 budget includes $42 million in funding
to assist small firms owned by members of dis-
advantaged groups.
* This program will assist these firms in obtaining
4,600 contracts in FY 1984, and will provide
management assistance to 10,300 firms.
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* This is the same program level as last year, but
with this difference: Beginning in FY 1984, 1U%
of MBDA's program level would be financed through
private sector cost-sharing, gradually increasing to
25% by 1987.
- Private sector cost-sharing means that the manage-
ment and technical assistance that the federal
government provides to minority-owned businesses
through contracts with public and private organiza-
tions would no longer be provided at no charge.
- In-effect, a 10% "user fee" would be levied, and
this would Gradually be increased to 25%.
-- In addition to credit and management assistance, the
Administration has raised the target value of federal
procurement contracts to be awarded to minority
businesses from $11 billion over 1980-82, to $15
billion over 1983-85, a 37% increase.
Justification.
o Credit assistance.
-- Less than 2% of small businesses receive a! type
of federal assistance through SBA.
* Subsidized direct loans create an unfair competitive
advantage for a few firms over'others that are
equally deserving.
* Elimination of direct loans will affect less than
0.3% of this country's small businesses.
-- Reducing the extent of federal loan guarantees from
90% to 70% will encourage private lenders to improve
the quality of their loans, and decrease the
likelihood that the Federal Government will lose
money through default.
* Reducing Federal intervention in the credit market
will actually increase the supply'of credit available
to private borrowers, especially to those who could
succeed on their own, but have been unable to secure
loans in the past because of extensive federal
absorbtion of credit.
* As interest rates continue to decline, small
businesses will be able to obtain credit more
easily.
* The federal government will continue to provide
credit assistance to disadvantaged individuals.
o Minority business assistance.
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-- The Administration remains committed to ensuring
that minority-owned businesses have an equal
opportunity for growth and development.
-- The shift from direct assistance to indirect assistance
will discourage a tendency on the part of some minority
firms to depend on federal aid for survival, and will
help eliminate the perception on the part of some
financial institutions that minority enterprises are
higher credit risks.
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Questions and Answers.
o The capital crunch. If the federal government no longer
provides direct loans, where will small businesses raise
the capital they need to get started and to stay in
operation?
-- 99.7% of small businesses do not get SBA direct
loans. The overwhelming majority of small businesses
in this country succeed or fail without so much as a
dime's worth of federal assistance.
Some small business people arrange their, own bank
loans, but many rely on savings or on loans from
friends and family to raise their working capital.
-- The SBA will continue to provide significant amounts
of loan guarantees and other assistance, especially to
disadvantaged firms.
o Government isn't doing enough. Given the present state
of the economy, shouldn't the federal government be doing
more to help small business?
-- The economic policies pursued by the Reagan
Administration are already doing more for small
business than any direct aid program could do.
-- Tax reform.
* The personal income tax rate cuts are enormously
beneficial to small business.
- The vast majority of small fins are sole
proprietorships or partnerships.
- That means that all the money the owners make
through the business is taxed as personal income.
- The 25% Reagan tax rate cut therefore allows small
business people to keep significantly more of their
earnings than they would otherwise have been able
to do.
* The provision to allow expensing of up to 55,000 in
investment each year will further help small business
raise capital.
* The reductions in estate taxes allows
family businesses to be passed from one generation
to the next, instead of having to be sold for
taxes when the owner dies.
-- Regulatory reform.
* Reducing red tape is especially helpful to small
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business owners who cannot afford the legal and
clerical assistance they need to cope with federal
paperwork.
-- Inflation.
* The two-thirds drop in the rate of inflation that
has occured since President Reagan took office
helps small businesses, which cannot offset increased
operating costs by raising prices as easily as can
large corporations.
-- Interest rates.
* The prime rate is now less than half what it was in
January 1981; this makes it much easier for small
businesses to borrow.
o Disadvantaged minorities. But don't members of minority
groups still need special assistance in starting their
own businesses.
-- They often do. That is why the Administration is not
reducing funding'for business assistance programs that
help the disadvantaged.
-- In the case of federal procurement, the Administration
is actively working to ensure that minority-owned
businesses'get a greater amount of federal contracts.
o 8(a) graduation. Then why is SBA "graduating" so many
minority businesses from its 8(a) program? Isn't that
just a polite euphemism for cutting off their government
contracts?
-- The law was amended during the last Congress to
require time limits (which vary according to the
type of business) on participation in the program.
-- This change was made in order to give more minority-
owned businesses a chance to get government contracts,
and to ensure that these firms not become totally
dependent on the government for their incomes.
-- The SBA is making every effort to ease the transition
for those firms whose time limits are now expiring.
-- MBDA is also implementing a transition program, and the
Secretary of Commerce is encouraging major government
contractors to subcontract with minority-owned firms.
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Administration
--
into a single, cabinet-level department:
the Department
of
Transportation (DOT). The Maritime
Administration
was
transferred from the Department of
Commerce to DOT
in
August, 1981.
o Programs.
History.
Significant federal involvement in transportation
issues dates from the middle of the last century, when
Congress subsidized the extension of railroad lines
nationwide through land grants. This was followed by the
creation of the first independent federal regulatory agency,
the Interstate Commerce Commission, in 1887. The federal
role further expanded as first motor and then air
transportation revolutionized interstate commerce.
The present interstate highway system is the product of
the Federal Highway Act of 1956. This act authorized the
expenditure of $32 billion over the ensuing 13 years for the
construction of a 41,000 mile interstate highway system.
In 1966,,Congress consolidated the bulk of federal
transportation agencies -- including the Coast Guard, the
Federal Aviation Administration, the Federal Highway
Administration, the. National Traffic Safety Agency (fore-
runner of the'National Highway Traffic Safety
Administration), and the Urban Mass Transportation
-- Ground transportation.
* Highway systems (Federal Highway Administration).
- The Federal Highway Act provided for gas taxes and
other highway user items to be paid into a Highway
Trust Fund to finance the system.
- This fund is administered by the Federal Highway
Administration (FHWA).
- FHWA is in char a of providing grants to the states
for federal highway planning, construction,
maintenance, and improvement.
* Highway safety (National Highway Traffic Safety
Administration).
- The National Highway Traffic Safety Administration
(NHTSA), was established by the Highway Safety Act
of 1970.
- NHSTA is charged with promulgating and enforcing
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federal safety and fuel economy standards, and
supplementing state highway safety standards.
* Mass transit (Urban Mass Transit Administration).
- The Urban Mass Transit Administration (UMTA) was
established by the Urban Mass Transit Act of 1964
- UMTA administers federal aid for mass transit
systems. .
- This aid is dispensed through a variety' of formulas
(based on factors including population, bus and
rail vehicle miles, and passenger miles) and
through discretionary grant programs.
- The majority of funds are reserved for capital
projects, such as construction and rehabilitation
of bus and rail facilities.
- Grants are also provided for operating assistance,
planning activities, demonstration projects, and
research.
* Railroads (Federal Railroad Administration).
The Federal Railroad Administration (FRA) was
created pursuant to the Department of
Transportation Act of 1966.
- The FRA administers federal rail safety laws
and issues regulations; it also administers grants,
direct loans, and loan guarantees to certain
railroads -- including the Consolidated Rail
Corporation (Conrail) and the National Railroad
Passenger Corporation (Amtrak) -- shipping groups
and state and local governments; and owns and
operates the Alaska Railroad.
* Regulation (Interstate Commerce Commission).
The Interstate Commerce Commission (ICC), regulates
interstate surface transportation, including
trains, trucks, buses, inland waterway and coastal
shipping, and freight forwarders.
- The ICC is authorised to ensure that the carriers
it regulates will provide the public with rates and
services that are 'fair and reasonable."
-- Air transportation.
* Airways and airports (Federal Aviation
Administration).
- The Federal Aviation Administration (FAA),
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created in 1958 as the Federal Aviation Agency,
is charged with protecting air safety.
- It promulgates and enforces rules and regulations
relating to the manufacture, operation, and
maintenance of aircraft, and to the training and
certification of pilots.
- It manages the nation's air traffic control system,
and also the Airport and Airway Trust Fund, which
finances airport development, modernization of the
FAA capital plant, and a portion of FAA operating
costs. Federal revenues received from airline
tickets and airport user fees are statutorily ear-
marked for deposit into Airport and Airway Trust
Fund.
* Aeronautical research and technology (NASA).
- The National Aeronautics and Space Administration
(NASA) is an independent federal agency established
by Congress in 1958.
- NASA's aeronautical research and technology
programs are designed to increase the safety,
efficiency, and performance of civilian and
military air transportation, and to maintain
U.S. leadership in aeronautical technology.
* Air carrier subsidies.
- This program was instituted to ensure that
smaller communities would not abruptly be
denied air carrier service in the wake of
airline deregulation.
* The Civil Aeronautics Board (CAB) is an independent
government agency. created by Congress in 1938 to
regulate the civil air transport industry.
- Deregulation of the airline industry has been in
progress since 1978. The Board's major remaining
responsibilities are to regulate international
aviation and to administer an airline subsidy
program.
-- Water Transportation.
* Marine safety and transportation (Coast Guard).
- The Coast Guard was established by Congress in
1915. '
- Coast Guard services include search and rescue,
maintenance of navigation aids, enforcement of
maritime laws, and other activities.
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* Ocean shipping (Maritime Administration).
The DOT's Maritime Administration has traditionally
provided two types of subsidies to assist the U.S.
merchant marine and shipbuilding industry.
Operating subsidies offset the higher costs of
operating U.S. flag vessels.
Construction subsidies offset the higher costs of
building vessels in U.S. shipyards.
* Regulation (Federal Maritime Commission).
- The Federal Maritime Commission was established
in 1961.
- The commission grants antitrust immunity to ocean'
common carriers in the waterborne U.S. foreign
trades and regulates rates in the domestic offshore
commerce of the United States.
0 Program Changes.
In recent years there has been a pronounced trend
toward deregulation of transportation services.
* In 1978, Congress enacted legislation to deregulate
the airline industry, and abolish the Civil Aeron-
autics Board in 1985.
* In 1980, Congress enacted two bills to reduce
regulation of the trucking, household mover, and
railroad industries.
* In 1982, Congress enacted a bill to reduce regulation
of the bus industry.
o Costs.
-- Total outlays.
* The government
spent
$6.9
billion
on
transporation
in FY 1970.
* The government
spent
$23.4
billion
on
transportation
in FY 1981.
Highways and Highway Safety.
* The government spent $4.5 billion in FY 1970.
* The government spent $9.4 billion in FY 1981.
Mass transit.
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193
* The government spent $106 million in FY 1970.
* The government spent $3.9 billion in FY 1981.
-- Railroads.
* The government spent $17 million in FY 1970
* The government spent $3.7 billion in FY 1981.
-- Air transportation.
* The government spent $1.3 billion in FY 1970.
* The government spent $3.9 billion in FY 1981.
-- Water transportation.
* The government spent $910 million in FY 1970.
* The government spent $2.42 billion in FY 1980.
o Administration Action to Date.
-- For FY 1982:
* President Carter proposed total outlays of
$21.5 billion for transportation programs, including:
- Highways and highway safety, $8.9 billion.
- Mass transit, $3.8 billion.
- Railroads, $1.8 billion.
- Air transportation, $4.2 billion.
- Water transportation, $2.8 billion.
* President Reagan proposed spending a total of $20.0
billion, including:
-Highways and highway safety, S8.5 billion.
- Mass transit, $3.8 billion.
- Railroads, $1.7 billion.
a) The Administration further proposed that Conrail
be sold immediately, and that the subsidy to
Amtrak be reduced by half a billion dollars from
the level proposed by the Carter Administration.
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-iAir'transportation, $3.5 billion,
Water transportation, $2.5 billion.
* Congress approved a total of $21.2 billion,
including:
- Highways and highway safety, $8.9 billion.
- Mass transit, $3.6 billion.
- Railroads, $2.U billion.
a) Congress postponed the sale of Conrail until
after June of 1983, and reduced the subsidy to
Amtrak to $400 million less than the Carter
proposal.
b) Congress accepted administration proposals that
Amtrak be required to cover 50% of its costs
with revenues, and that it be allowed to
terminate service without congressional approval
in certain circumstances.
- Air transportation, $3.8 billion.
- Water transportation, $2.9 billion.
-- For FY 1983:
* President Reagan proposed total outlays of
$19.6 billion for transportation, including:
- Highways and highway safety, $8.6 billion.
- Mass transit, $3.2 billion.
- Railroads, $1.2 billion.
- Air transportation, $4.0 billion.
- Water transportation, $2.6 billion.
* Congress approved $21.8 billion, including:
- Highways and highway safety, $9.U billion.
- Mass transit, $3.9 billion.
- Railroads, $1.6 billion.
- Air transportation, $4.2 billion.
a) Increased funding for air transportation
programs derived from the Airport and Airway
Improvement Act, which Congress passed in 1982.
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b) Essentially, this act provided for moderniza-
tion of the FAA capital plant and airport
improvements by increasing airport user fees.
c) Specific provisions included increases in air-
line ticket taxes and taxes on aviation fuels.
- Water transportation, $3.1 billion.
The President's Proposals for FY 1984.
o The Reagan Administration proposes total outlays of
$25.1 billion for transportation, an increase of 15%
over 1983 levels, including:
-- Highways and highway safety, $12.5 billion.
-- Mass transit, $3.8 billion.
-- Railroads, $1.2 billion.
-- Air transportation, $4.8 billion.
-- Water transportation, $3.0 billion.
o Highways and mass transit.
-- In December, 1982, Congress passed the Surface
Transportation Assistance Act.
-- Highways.
* This legislation provides for increased
expenditures for completing and preserving
the interstate highway system and for repairing
highways and bridges.
- Funding for interstate completion and
rehabilitation will increase 64% over FY 1982
and 8% over FY 1983 levels.
- Interstate rehabilitation will show the greatest
percentage increase: 200% over FY 1982 and 25% over
FY 1983.
* To finance these improvements, the legislation
increased the highway motor fuels tax from 4 to 9
cents per gallon -- the first such increase since
1959.
* It also restructured other highway user taxes to
make them more equitable.
- Users who cause the heaviest damages to highways
must now pay a greater share of the taxes required
to maintain them.
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*--The restructuring of these taxes made possible
the elimination of a number of smaller taxes,
such as tire and tube taxes.
-- Mass transit.
* The Surface Transportation Assistance Act also sets
aside 1 cent of the 5-cent per gallon motor fuel
tax increase for urban mass transit.
o Railroads.
-- In keeping with the Administration's policy of
reducing federal responsibility for rail activities
unrelated to safety, federal aid is being reduced or
eliminated in conjuction with continued efforts to
deregulate the railroads so that they may be
self-supporting.
-- In December 1982, Congress passed Administration-backed
legislation authorizing transfer of the Alaska Railroad
to the State of Alaska. Federal outlays for the
railroad are being eliminated in keeping with efforts
to complete the transfer in FY 1983.
o Air transportation.
-- The 1982 increase in airport user fees will
continue to finance the multi-year FAA capital
modernization program, airport improvement grants
and an increased share of FAA operations and
maintenance costs.
o Water transportation.
-- The Administration requests approximately the
same amount for this item in FY 1984 as in FY 1983.
-- The Administration proposes again that user fees
be charged to cover some services presently provided
by the Coast Guard at no cost to the beneficiaries.
Justification.
o Highways.
-- The interstate highway system will be funded at a
level that will lead to campletion of the system by
the early 1990s.
-- Rehabilitation of the aging highway system, which
carries half of all interestate traffic, will receive
high priority, as will the repair or replacement
of unsafe highway bridges, so that further
deterioration of the system will be halted, and
existing decay will be repaired.
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* It is much less expensive to repair than to replace a
highway.
o Mass transit.
-- Directing federal aid toward capital funding of
urban mass transit systems will help preserve the
aging fixed-rail systems that are beginning to fall
into disrepair in many cities.
-- Federal operating assistance will be reduced.
* These funds have previously supported marginally
effective transit services that would not have been
undertaken if federal aid had not been available.
* Operating subsidies have enabled fares to remain
artificially low; those who use these transit
systems, not the nation's taxpayers, should pay' for
this privilege.
* Federal regulations attached to this assistance have
increased operating costs.
o Railroads.
-- Passenger railroads, operating with federal subsidies,
have become extemely inefficient, forcing federal
subsidies even higher.
-- Reducing both federal subsidies and regulation further
will continue the on-going process of successfully
putting the railroads back on a sound financial
footing.
o Air transportation.
-- The FAA workload is projected to increase by
60% to 80% between 1981-2000.
-- Upgrading and expanding the aviation infrastructure
is essential to meet anticipated demand through the
year 2000.
o Water transportation.
-- Certain Coast Guard functions, such as rescue
operations and navigation aids, principally benefit
certain distinct groups, such as pleasure-boat owners.
-- It is only fair that these special beneficiaries pay
for the cost of these services through user fees.
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Questions and Answers.
o Road building. How can you guarantee that the funds
provided for road repair are sufficient? Are't road
conditions much worse than we are led to believe?
-- Based on analysis of a Department of Transportation
study, the new 5 cents per gallon motor fuels tax is
more than sufficient to meet highway needs at the
historic level of Federal support.
* The DOT analysis concluded that a 3.7 cent increase
was sufficient, 0.3 cents less than was approved
(subtracting one cent for mass transit.)
* The analysis assumed maximum need; there was no
wishful thinking involved.
-- States will still be called upon to contribute a
substantial share of the costs of reparing state
highways and bridges, where the majority of road
disrepair problem exists.
o Trucks and Taxes. Are higher truck taxes unfair to heavy
trucks?
-- No. In the past, heavy trucks have been paying only
about 60% of the costs they impose on the system.
-- Even when the new taxes are fully implemented, the
heaviest trucks will still pay only about 73% of the
costs they impose. Trucks will still be subsidized by
other highway users.
o Mass transit responsibility. Doesn't the federal govern-
ment have an obligation to fully fund mass transit
systems?
-- The Administration has consistently maintained that
federal aid to mass transit should be for capital
assistance, rather than operating assistance.
* Operating costs should be borne by those who actually
use the mass transit systems.
* They are also more properly a matter for state and.
local concern.
-- Federal operating subsidies are wasteful and counter-
productive.
* These funds have supported marginally-effective
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transit services that would not have been provided
at all if federal assistance were not available.
* Operating subsidies have also kept fares at
artificially low levels.
o Mass transit funding. Isn't the President's mass-transit
budget just a shell game? Hasn't he backtracked on
promises made during the gas tax debate to increase
mass transit funding?
-- The President has never altered his view that federal
aid in this area should be directed toward capital
assistance rather than operating assistance.
* Operating subsidies will be gradually reduced, but
capital assistance will increase 44% in 1984 over
1982 levels.
* In 1983 and 1984, $1.8 billion dollars in federal aid
will be made available for capital projects. (This
will especially benefit cities with aging fixed-rail
systems, as funds are directed toward their
long-deferred captital needs.)
-- Most important of all: Thanks to the Administration's
motor fuels tax, transit systems will have for the
first time a dedicated source of revenue.
* One cent out of every nickel raised under this tax
is earmarked for mass transit; systems no longer must
be dependent on whatever amount happens to be
appropriated in a given year.
* The Administration's budget request for mass transit
is based on Treasury Department estimates of the
amount of revenue that will be generated under the
new tax.
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URBAN BENELOPMENT
HIstory?
The Urban Renewal Program was , established in`l949 as
the first major federal program intended to arrest urban
decay. In the 1960s, the Model Cities, Neighborhood
Facilities, Water and Sewer and Open Space Land programs
were established. Then, in 1974, these programs were
combined into the Community Development Block Grant.
In 1978, the Urban Development Action Grant Program was
established as a program for leveraging private investments
for urban development projects.
Today, CDBG and UDAG are the two major federal urban
development programs. They are administered by the
Department of Housing and Urban Development.
o Programs.
-- Community Development Block Grants (CDBG).
* Awards annual grants to "entitlement" communities --
generally cities h more than 50,000 population,
central cities, and urban counties with population
exceeding 200,000 -- to carry out a wide range of
activities, including:
- The acquisition of real property for commercial,
industrial or residential deve opment, for public
facilities such as day care centers or senior
citizens homes, or for streets-or water and sewer
projects.
- Rehabilitation of residential and nonresidential
structures.
- Provisions of or improvements in public facilities,
such as water and sewer facilities, streets and
neighborhood centers.
* Entitlement communities develop their own pro rams
and funding priorities. However, they are obligated
to give maximum feasible priority to activities that
do at least one of the following:
- Benefit low- and moderate-income persons.
- Aid in the prevention or elimin4tion of slums.
- Correct urgent problems that pose health or safety
threats to the community.
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* Nonentitlement communities can receive awards in
either of two ways:
-
In states that administer nonentitlement
from HUD, these cities and counties can
grants from their state governments.
funds
receive
-
In other states, nonentitlement communities
compete for awards under HUD's Small Cities
Program. The cities and counties with the
greatest likelihood of receiving awards in the
grant competition are those with the highest
percentage of absolute poverty, those whose
programs would have the greatest positive impact
on distressed communities, those with the greatest
community development needs, and those that have
demonstrated commitment to fair housing and equal
opportunity.
-- Urban Development Action Grants (UDAG).
* Makes grants available to distressed cities and urban
counties to help them stimulate private sector
economic development activities.
* Cities typically loan grant mone to developers for
the construction o public or private buildings,
infrastructure improvements, or other economic
development activities.
* Awards are given only when private sector commitments
are firmly in place.
- The minimum private sector contribution to a
project is $2.50 for each UDAG dollar.
- The average private sector contribution is
$6.00 for each UDAG dollar.
o Coverage.
-- CDBG.
* Entitlement awards.
In FY 1975, the first full year of the CDBG
program, 583 cities and urban counties received
funds.
- By FY 1981, this number had increased to 643.
* Nonentitlement awards (Small Cities Program).
- In FY 1975, 1,825 awards were made.
- In FY 1981, the number was 1,822.
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* In FY-1978, the first year of the program, UDAG
supported 124 projects in 111 cities.
* Since 1978, the program has supported 1,550 projects
in 750 cities.
o Costs.
-- CDBG.
* In FY 1975, the first full year of funding for the
CDBG program, the budget was $2.6 million.
* In FY 1981, the CDBG budget was $3.7 billion, a more
than 1,300-fold increase.
-- UDAG
* In FY 1979, the UDAG budget was $400 million.
* In FY 1981, the UDAG budget was $675 million.
o Administration action to date.
-- CDBG.
For FY 1982:
President Carter requested $4.0 billion.
President Reagan requested $3.2 billion.
- Congress approved $3.5 billion.
* For FY 1983:
- President Reagan requested $3.5 billion.
- Congress approved $3.5 billion.
-- UDAG.
For FY 1982:
President Carter requested $675 million.
President Reagan requested $439 million.
Congress appproved $458 million, with a provision
that as much as 5% of that amount could be cut by
the Administration. With the Administration's cut
of that amount, the budget was $435 million.
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* For FY 1983:
- President Reagan requested $440 million.
- Congress approved $440 million.
The President's Proposals for FY 1984.
o CDBG.
-- Maintain budget in FY 1984 at the FY 1983 level.
-- Include new housing construction as an activity
eligible for financing under the grant program.
-- Mandate that all states administer the non-entitlement
portion of the CDBG program. Presently, states can opt
to administer the program themselves or can leave
administration activities with the federal government.
-- Requested $196 million for the program in 1984; when
combined with proposed deferral of $244 million of
excess 1983 funds, this would maintain $440 million
program level.
Justification.
-- Since the budget for this program is sufficient at the
1983 level, the Administration is requesting t ht same
amount for 1984.
* The dramatic slowing of inflation, plus expected
program efficiencies, means that approximately the
same amount of real dollars will be available this
year as last.
-- By allowing CDBG funds to be used for the construction
of new housing units, the Administration's proposal
gives recipient cities and counties more flexibility in
meeting their communities' individual needs.
-- By requiring states to administer the program, money
for staffing and administrative activities would be
saved.
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-- The Administration's request anticipated a deferral of
$244 million from 1983 to 1984 to maintain UDAG program
levels at 440 million.
-- The recent "jobs" bill disapproved the deferral to
provide money for jobs creation as soon as possible.
-- The funding made available for 1983 and 1984 will still
average $440 million per year, and is sufficient at
this level..
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Questions and Answers.
o UDAG budget request. Isn't the President's actual budget
request for UDAG really a lot less for 1984 than the level
for 1983?
-- The President's request for new budget authority is for
$196 million.
-- Under the President's proposed 1984 budget, the
requested $196 million in new budget authority for
1984, combined with the proposed deferral of $244
million, would have maintained the $440 million program
level in 1984.
-- Although the Congress directed tht the $244 million be
used in 1983 in the recently enacted "Jobs" Bill, the
total UDAG resources available in 1983 and 1984 will be
nearly $1 billion.
o Number of projects. How will the President's request
affect the number of projects which can be supported?
-- The CDBG request, which is for the same level of
funding in 1984 as in 1983, will be sufficient to
maintain the same level of activity.
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History.
Since 1913, the federal government has encouraged
private support for the arts by offering tax incentives for
individual and corporate taxpayers to contribute to arts
endeavors. But the establishment of the National Foundation
for the Arts and Humanities in 1965 marked the first time
the federal government committed direct public support.
The Foundation is not an administrative body, but a
statutory umbrella designation for three independent
agencies.
o Programs.
-- The National Endowment for the Arts, charged to assist
projects that enhance artistic excellence and to
increase access to that excellence, provides financial
support in three key areas:
* Grants to educational institutions, performing
companies and other entities for the presentation of
dance recitals, musical concerts, theatrical
performances, art exhibits and other arts projects.
* Challenge grants -- most of which are matched by $3
in private contributions for each $1 provided by the
Endowment -- for the support and stability of concert
halls, museums, performing companies and other arts
institutions.
* Financial support for state arts agencies.
-- The National Endowment for the Humanities supports the
dissemination of knowledge regarding the arts in two
key ways:
* Award of grants and contracts to humanities scholars,
arts historians, and various humanities institutions
for work to enhance appreciation of the arts and to
improve the teaching of the arts.
* Collection of information regarding humanities
resources and institutions, and dissemination of this
information to interested parties upon request.
-- The Institute for Museum Services, charged to assist
museums of all kinds in increasing and improving their
services to the public, awards grants to museums for
general operating support and some special projects.
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o Coverage.
-- In FY 1982, NEA funds supported approximately 5,000
projects.
-- In FY 1982, NEH funds supported 2,143 projects.
-- In FY 1982, IMS funds awarded some 440 grants to
museums.
o Costs.
-- In FY 1966, NEA and NEH each had budgets of $2.4
million.
-- In FY 1970, each had budgets of $8 million, more than
three times the initial appropriation level.
-- In FY 1978, IMS' first full year of operation, the
Institute received an appropriation of $4 million.
-- In FY 1981, appropriations for each of the three
agencies peaked, with NEA receiving $158.8 million, NEH
receiving $151.3 million, and IMS receiving .9
million -- for the former two, an increase of nearly
20mes in a decade; and for the latter, a more than
tripling in just three years.
o Administration Action to Date:
-- For FY 1982:
* President Carter proposed a total of $361 million for
the three agencies:
- $175 million for NEA.
- $169.5 million for NEH.
- $17 million for IMS.
* President Reagan proposed a total of $173 million for
the three agencies:
- $88 million for NEA.
- $85 million for NEH.
- No funding for IMS.
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208
* Congress approved a total of $286 million for the
three agencies:
- $143 million for NEA.
- $130.6 million for NEH.
- $11.5 million for IMS.
-- For FY 1983:
* President Reagan requested a total of $197 million,
inc uding:
$101 million for NEA.
- $96 million for NEH.
No funding for IMS.
* Congress approved a total of $285 million, including:
- $144 million for NEA.
- $130 million for NEH.
- $10.8 million for IMS.
The President's Proposals for FY 1984.
o Continue support for arts activities at slightly reduced
levels.
-- For NEA, the President is requesting $125 million,
about7l9 million less than the 1983 level.
-- For NEH, the President is requesting
$112.2
million,
$18 million less than for 1983.
-- For IMS, the President is requesting
$11.5
million,
$700,000 more than for 1983.
o Focus funding strategies to further increase private
sector support.
-- NEA initiatives.
* Through the Challenge and Advancement programs,
emphasize longer-term institutional support to
strengthen the financial base of arts organizations.
Funding for the Advancement program will increase
from $1.5 million in 1983 to $1.9 million in 1984.
Challenge grants will account for almost 14% of
NEA's total budget in 1984.
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* Begin development of an arts information system,
accessible to anyone concerned with the arts,
including information about activities supported by
NEA, state arts organizations, and arts service
organizations.
* Institute the Locals Test program to determine how
best to increase arts support at the local level.
-- NEH Initiatives.
* Initiate a new round of Challenge grants, making
about 85 new awards in 1983 and 65 new awards in
1984.
* Continue sufficient level of funding for the
Treasury Fund program, which provides funds for
specific arts and humanities programs recommended by
the National Council for the Humanities.
Justification (General).
o Enhancement of the arts and humanities is not a critical
national need.
o Their funding should be reduced in any case, and
especially so when the need to reduce federal spending
growth is so great.
o Steps should be taken to encourage greater private support
of the arts and humanities.
-- The vitality of the nation's arts depends on a
substantial level of private sector support.
-- The President's Committee on the Arts and Humanities
will continue to seek ways of increasing private
support.
-- Also, NEA will use its grants to leverage increased
private contributions.
Justification (Specific).
o NEA:
-- Challenge and Advancement Program.
* By strengthening the financial base of arts
institutions that participate in these programs, the
Administration will encourge them to maintain
diversity in their repertoires and enable better
planning.
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-- Arts Information System.
* Telecommunications will link stte and other arts
organizations to the central NEA data base,
increasing access to information about the arts and
improving the efficiency of arts program development.
-- Locals Test.
* For arts agencies and programs to flourish, it is
necessary for those who enjoy the presentations and
performances to participate more actively in their
support. This test program prow des $2 million in
seed money to determine how best to increase local
backing.
-- Challenge Grants
* Expanding participation in this program by making new
awards will encourage long-term financial planning
and fundraising.
* This program will encourage private sector
participation because it requires a 3-to-$1 match,
with the private sector contributions g co from new
donors or increased contributions from previous
donors.
-- Treasury Fund.
* This program will stimulate private sector support on
behalf of specific humanities projects because it
requires a $1-to-$1 private sector match of federal
contributions.
-- The President's proposal for a $700,000 increase in
budget authority in 1984 is necessary to kee the
ogerating budget even with the 1983 level o .5
million.
* The 1983 level of $11.5 million consisted of an
appropriation of $10.8 million supplemented b
$700,000 in unused grant funds that were carried over
om
* All appropriated funds are expected to be used in FY
1983.
-- This level of funding will permit IMS to continue
providing the same level of services to museums
throughout the country.
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Questions and Answers.
o Total cuts. How much less will the 1984 federal
commitment to the arts and humanities be than in the
previous year?
-- Overall federal funding for the arts and humanities
will be reduced by about $36 million in 1984.
-- This level represents a 13% decrease from the 1983
appropriation.
o Effects of the proposed changes. Won't the President's
proposals adversely affect the level of arts activity
across the country?
-- Because of increased efforts by arts agencies to
guarantee more private sector su ort, the modest
reductions proposed by the President should be offset
substantially by private sector giving.
o Level of non-federal support. How can the Administration
expect the private sector and state and local governments
to help out in these difficult times?
-- Studies show that private giving and non-federal public
support are increasing.
* In 1981, total corporate ivin was up ~11.1%, and
private support was up nearly $400 million over the
previous year.
* In 1982, 9 of 10 corporations surveyed for the
National Council on Foundations said they would
increase giving generally or hold the level equal.
* In 1983, state appropriations for state arts agencies
is up by 4.8%. Local government contributions are
also up.
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History.
The equitable administration of justice is one of the
most basic functions of any legitimate government.
The steadily increasing role of the federal government in
our national life during this century has brought a
corresponding increase in the federal government's
responsibility for the administration of justice.
The government's chief law enforcement arm, the FBI,
was enlarged over the years to cope with a succession of new
threats: the emergence of organized crime syndicates during
the 1920s, espionage in two world wars and thereafter, a
resurgent Ku Klux Klan, the rise of new terrorist groups,
and other criminal activity. The passage of the Clayton
Antitrust Act in 1914 brought the government into the area
of investigating and prosecuting "white-collar crime."
Enforcement of civil rights laws has placed new demands on
the federal machinery of justice. More recently, illegal
immigration has emerged as a major problem.
o Programs.
-- Federal law enforcement activities.
* More than half the federal resources for the
administration of justice are devoted to law
enforcement activities.
* General investigation (FBI).
- The Federal Bureau of Investigation (FBI) was
established as part of the Department of Justice
in 1908 by order of the Attorney General.
- The FBI enforces a broad range of federal criminal
statutes, and works with state and local
authorities both to support FBI missions and to
assist them in performing their activities through
training, dissemination of information, and other
assistance.
- Federal law enforcement funds are used primarily
for investigating those cases that are purely
federal, multi-jurisdictional, or too complex for
state and local authorities to handle.
** Narcotics violation investigation (DEA).
- The Drug Enforcement Administration (DEA) was
created as part of a reorganization of the
Department of Justice in 1973.
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- DEA consolidated four previously separate drug
enforcement agencies, and was designed to provide
leadership in the national and international
supression of dangerous drugs.
* Alcohol, tobacco, and firearms investigation (ATF).
- The Bureau of Alcohol, Tobacco,, and Firearms (ATF)
was established by Treasury Department order in
1972.
- The order transferred the functions, powers, and
duties arising under laws relating to alcohol,
tobacco, firearms, and explosives fran the Internal
Revenue Service to the new bureau.
* Border enforcement activities (Customs and INS).
- The United States Customs Service (originally the
Bureau of Customs) was established as a separate
agency in the Treasury Department by act of
Congress in 1927 to collect revenue from imports
and enforce customs and related laws.
- The Immigration and Naturalization Service (INS)
was created within the Department of Justice by
act of Congress in 1891. It is responsible for
administering the immigration and naturalization
laws relating to the admission, exclusion,
deportation, and naturalization of aliens.
* Protection and other activities (Secret Service).
- The Secret Service was established by Congress in
1865 as an arm of the Treasury.
- Originally charged with the detection and arrest of
counterfeiters, the service was made responsible
for the safety of U.S. presidents in 1901.
-- Federal litigative and judicial activities.
* Approximately one-third of all resources for the
administration of justice are for federal
civil and criminal prosecutions and for maintaining
our federal court system.
* The Department of Justice litigates all of the
federal government's criminal cases and most of
its civil cases.
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-- Federal correctional activities.
* The federal government is responsible for the
care and custody of prisoners charged with or
convicted of violating federal laws.
* This responsibility is discharged by the Bureau
of Prisons, which is a branch of the Department
of Justice.
-- Criminal justice assistance.
* The National Institute of Justice and the Bureau of
Justice Statistics are independent bureaus within the
Department of Justice that conduct research and
gather and disseminate statistics on criminal and
civil matters.
* The National Institute of Corrections (also within
the DOJ), provides technical assistance and small
grants to states, localities, and non-profit
organizations for applied research and development
related to criminal justice.
o Costs.
-- Total costs (outlays).,
* In FY 1970, the government spent $972 million on
the administration of justice.
* In FY 1981, the government spent $4.4 billion on
the administration of justice.
-- Law enforcement activities.
* In FY 1970, the government spent $587 million.
* In FY 1981, the government spent $2.0 billion.
-- Federal litigative and judicial activities.
* In FY 1970, the government spent $232 million.
* In FY 1981, the government spent $1.2 billion.
-- Federal correctional activities.
* In FY 1970, the government spent $88 million.
* In FY 1981, the government spent $342 million.
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-- Criminal justice assistance.
* In FY 1970, the government spent $65 million.
* In FY 1981, the government spent'$656 million.
o Administration Action to Date.
-- For FY 1982:
* President Carter proposed total outlays of
$4.5 billion, including:
- Law enforcement activities, $2.5 billion.
- Litigative and judicial activities,
$1.3 billion.
- Correctional activities, $380 million.
- Criminal justice assistance, $360 million.
* President Reagan proposed total outlays of $4.2
billion, including:
- Law enforcement activities, $2.4 billion.
- Litigative and judicial activities, $1.2
billion.
- Correctional activities, $350 million.
- Criminal justice assistance, $290 million.
* Congress approved total outlays of $4.4 billion,
including:
- Law enforcement activities, $2.5 billion.
- Litigative and judicial activities, $1.3
billion.
- Correctional activities, $360 million.
- Criminal justice assistance, $290 million.
-- For FY 1983:
* The Reagan Administration proposed total outlays of
$4.8 billion, including:
- Law enforcement activities, $2.8 billion.
- Litigative and judicial activities, $1.4
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216
billion.
- Correctional activities, $400 million.
- Criminal justice and assistance, $160 million.
- The Administration also proposed, as part of its
request for law enforcement funds, $107 million
for a network of 12 regional task forces to
focus on organized crime drug enforcement.
* Congress approved $5.0 billion, including:
- Law enforcement activites, $3.0 billion.
- Litigative and judicial activities, $1.4
billion.
- Correctional activities, $420 million.
- Criminal justice and assistance, $190 million.
- Congress approved $104 million for the task forces.
The President's Proposals for FY 1984.
o Raise total spending for administration of justice to
$5.5 billion, an increase of nearly 10%.
o Increase funding for federal law enforcement activities by
11% to $3.3 billion.
-- The FBI's budget would be increased by 24% to pay for
major capital equipment acquisition and additional
manpower.
o Increase funding for federal litigative and judicial
activities by 14% to $1.6 billion.
o Provide $520 million -- an increase of $100 million -- for
prisons and other federal correctional activities.
-- These funds would be used for the construction of one
new federal prison, planning and site acquisition for a
second, construction of a new jail for pre-trial
detainees, and other modernization and rehabilitation
projects.
o Provide $170 million for criminal justice assistance to
the states and localities.
This includes a new $92 billion criminal justice
assistance program.
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-- Of this amount, $72 million will be in the form of
grants to the states to support programs that have
proved effective in reducing crime.
Justification.
o Crime is a serious national problem.
-- Violent crime in 1980 was 60% greater than in 1971,
and 33% greater than in 1976.
-- Crimes against property in 1980 were 54% greater than
in 1971, and 16% greater than in 1976.
-- The most frequent victims of crime are the elderly,
the poor, and minority group members.
-- Recent declines in crime are encouraging, but we cannot
let up on our efforts until crime rates are permanently
reduced.
o While recognizing that crime control is primarily a state
responsibility (the states handle 97% of all criminal
cases), the Administration also recognizes that the
federal government must play a leadership role, not
only in terms of federal investigations and prosecutions,
but also in terms of direct assistance to state and local
governments.
-- Federal law enforcement efforts must be equal to the
demands placed on the federal government in this area.
-- Federal assistance to anti-crime efforts at other
levels helps increase the effectiveness of these
efforts, yet leaves the implementation and ultimate
success of these programs where they belong -- at the
state and local level.
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Questions and Answers.
o Jails or Jobs? Why is the federal government spending
more money on law enforcement and correctional
institutions instead of addressing joblessness, poverty,
ignorance, hunger, and other causes of crime?
-- The federal government is spending more than 350
times on these particular problems than it is on law
enforcement.
-- Federal spending on these problems has increased 11%
since 1980 -- after adjusting for inflation.
-- But crime rates cannot be ascribed simply to economic
deprivation, discrimination, and related causes.
* The causes of crime are complex, but result in large
part because of the slim chance of punishment.
* The crime problem in this country has worsened
despite the great efforts being made to eliminate
poverty and promote racial justice.
-- Therefore, the key to reducing crime lies in improving
law enforcement, which the President's program does.
o Civil rights. Why is the Administration giving up on
civil rights enforcement?
-- The Administration is doing no such thing.
-- Since President Reagan assumed office, the Justice
Department has prosecuted more criminal violations of
civil rights than any previous administration.
-- Funding levels for the principal civil rights
enforcement agencies are 17.4% greater in the
proposed 1984 budget than they were in 1980.
o White-collar crime. With all its professed concern
about "crime in the streets," why is the Administration
so soft-on antitrust violations and kindred offenses?
-- The Administration is requesting more than $1 million
in additional funding to send white collar criminals
who gouge the consumer to jail.
o Illegal Aliens. Will the Administration be spending more
to enforce the immigration laws as well?
-- Yes. The Administration is requesting more than $40
million in additional funding for the Immigration and
Naturalization Service.
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Ai story.
The federal government's major involvement with energy
policy is a relatively recent development, dating from the
1970s. Prior to that time, ample energy supplies and stable
energy prices created little demand for federal inter-
vention. Thus, federal energy activities were largely
limited to the regulatory programs of the Federal Power
Commission, the Department of the Interior, the National
Science Foundation, and the nuclear-related programs of the
Atomic Energy Commission.
The oil embargo and other turbulence of the 1970s,
accompanied by the shock of rapid price increases and energy
supply disruptions, led to significantly increased federal
regulation of energy markets, subsidies for large-scale
demonstration and commercialization projects for alternative
energy technologies that were thought to offer long-term
benefit.
In 1974, the Federal Energy Administration was created
primarily to carry out greatly expanded oil regulation. In
the following year, energy research and development
activities of the Interior Department and the National
Science Foundation were combined with non-regulatory
activities of the Atomic Energy Commission under a new
agency, the Energy Research and Development Administration.
These activities were further consolidated in 1977 with the
establishment of the Department of Energy (DOE).
o Programs.
-- General research programs.
* Fossil energy program supports research to enhance
the efficient use and delivery of coal, oil and
natural gas.
* Conservation program supports long-term basic
research toward creation of the technology base for
private sector development of energy-efficient
processes.
* Renewable energy ro ram supports research and
development to help provide a generic technology base
for the private sector to use in developing advanced
energy systems.
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i20
* Energy supporting research pro ram fosters the
development of basic scientific and technical
knowledge in the physical sciences, the training of
future. energy professionals, and the analysis and
assessment of related energy research and technical
activities.
* General sciences program conducts basic research in
high energy physics, nuclear physics, the life
sciences and nuclear medicine.
-- Nuclear energy research programs.
* Nuclear program works to develop and demonstrate
nuclear technology and conducts and supports research
to enhance the safety of commercial reactors.
* Magnetic fusion program supports research toward
scientific validation and development of the
unlimited potential of nuclear tusion.
-- Energy production and power marketing produces domestic
crude oil at the Naval Petroleum Reserves (NPR) and
sells electric power through five power marketing
administrations. Also provides uranium enrichment
services primarily for commercial customers.
-- Regulation and information.
* Federal Energy Regulatory Commission (FERC) oversees
the interstate operation of electric utilities,
hydroelectric powerplants, and interstate natural gas
and petroleum pipelines with the intended goal of
ensuring adequate supplies at reasonable prices.
* Economic Regulatory Administration (ERA), because of
decontrol of oil, no longer has oil pricing and
allocation responsibilities, but continues to
administer compliance program for violations that
occurred before controls were ended.
Energy Information Administration (EIA) provides
central comprehensive energy data collection and
analysis.
Energy. emergency preparedness.
* Helps reduce problems associated with major
disruptions of oil supplies by such means as storage
in the Strategic Petroleum Reserve.
- By the end of FY 1980, the Strategic Petroleum
Reserve contained 98.2 million barrels. By the end
of FY 1982, the cumulative fill for the reserve was
277.9 million barrels, or nearly three times as
great.
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-- Synthetic Fuels Corporation.
* Functions as an investment bank providing "financial
incentives," but not direct funding, to the private
sector for the construction and operation of
commercial-scale plants to produce synthetic
substitutes for imported fuel.
* The Corporation was established in June 1980, and has
a total of $14.9 billion in resources available for
financial incentives.
o Costs.
-- In FY 1978, the budget for DOE -- excluding defense
programs -- was $9.2 billion.
-- In FY 1981, budget authority for energy programs was
$7.6 billion.
-- And in FY 1983, the level is $5.1 billion, plus $14.9
billion for the Synthetic Fuels Corporation.
o Administration Action to Date.
-- For FY 1982:
* President Carter requested $9.9 billion.
* President Reagan requested $6.9 billion.
* Congress approved $7.2 billion.
-- For FY 1983:
* President Reagan requested $5.0 billion.
* Congress approved $5.5 billion.
The President's Proposals for FY 1984.
o General research programs.
-- Reduce budget authority for fossil fuels research and
development to $94 million in 1984, from the 1983 level
of $217.5 mi lion.
-- Reduce budget authority for conservation research
programs in 1984 to $74.4 million, from the the
previous year's level of $410.2 million, with the
biggest savings resulting from the a imination of the
state and local grants program.
-- Reduce budget authority for renewable energy research
programs in 1984 to $102.3 million, from the prevelous
year's level of $252.6 million-
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-- Increase budget authority for energy supporting
research in 1984 to $402.5 from the 1983 level of
$341.3
-- Increase budget authority for high energy and nuclear
physics in 1984 to $645.2 million the 1983 level
of $554.1 million.
o Nuclear energy research programs.
-- Increase budget authority for nuclear fission in 1984
to 848.2 million in 1984 from the 1983 eve of $815.8
million.
* The major factor in this spending rise is the
increase in the breeder reactor systems program to
$602.5 million in 1984 from the 1983 level of $549.9
mi lion.
* The Clinch River Breeder Reactor project would
receive an increase in funding to $270 million in
1984 from $193.9 million in 1983.
-- Increase budget authority for magnetic fusion to $467
million in 1984 from $447.1 million in 1983.
o Energy production and power marketing.
-- Increases bud et authorit to $870.8 million in 1984
from $85 million in 1983.
o Regulation and information programs.
-- Reduce budget authority for the Federal Energy
Regulatory Commission to $34.6 million in 1984 from
$79.8 million in 1983. Though the request for new
budget authority will be sharply reduced, an estimated
$60 million in revenues will make actual 1984 budget
authority more than $10 million higher than the 1983
level.
-- Reduce budget authority for the Economic Regulatory
Administration (ERA) to $11.9 million in 1984 from
27.5 million in 1983.
o Strategic Petroleum Reserve.
-- Reduce budget authority to $742 million in 1984 from
$2.3 billion in 1984.
o The Synthetic Fuels Corporation is expected to commit
$6 billion in 1983 and $7.2 billion in 1984.
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Justification (General).
o Budget savings.
-- The President's request of $2.8 billion in 1984 for all
energy programs except atomic energy defense activities
is about $2 billion dollars less than the 1983 level.
o Continue promoting free market energy policies.
-- In accordance with oil price decontrol and other
deregulatory actions, regulation budgets are being
reduced.
-- The FY 1984 budget request limits the federal
government to research and development where the costs
and risks are high and the benefits too uncertain to
justify private sector investment.
* DOE is discontinuing or phasing out energy
demonstration projects that are at an appropriate
stage of development for market decisions.
* This removes the government from making decisions
more appropriately made in'the marketplace.
o Elimination of unnecessary programs.
-- The 1984 budget proposes the elimination of R&D
programs that have developed technologies to the point
where the private sector can make appropriate
investment decisions, which can in turn make new energy
sources available to U. S. consumers at reasonable
prices.
-- These include: active and passive solar heating and
cooling, alcohol fuels, ocean thermal energy
conversion., and hydropower.
o Adequate financing for critical programs.
-- In programs where there is clear national need for
federal involvement, the President has requested
increased budget authority.
-- These areas include: high energy and nuclear physics
programs and remedial action to treat or stabilize
radioactive wastes and to decontaminate and
decommission some DOE facilities and sites.
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Justification (Specific).
o Research programs.
-- Fossil Energy.
* Reductions are accomplished by continuing to
concentrate onl on high priority, long-term, high
risk R&D which industry cannot be expected to
undertake on its own, while leaving the demonstration
and commercial introduction of new technologies to
the private sector.
-- Conservation.
* Grants to state and local governments are proposed
for elimination because the activities supported by
the grants duplicate activities currently undertaken
in other federal agencies or at the state level.
* For example:
- Weatherization programs are provided sufficiently
by HHS and HUD.
- Grants to encourage schools and hospitals to seek
fuel efficiency are unnecessary, since previously
high energy prices have provided ample incentive to
use energy efficiently.
- The Energy Extension Service and State Energy
Conservation Plan programs duplicate information
and efforts al-ready ongoing at the state level.
These grants were intended only as seed money to
get these efforts started.
-- Renewable energy.
* Basic research and longer term development activities
have been retained and strengthened.
* Near-term development and demonstration activities
that the private sector can pursue more effectively
have been reduced.
-- Energy supporting research.
* The proposed increase in budget authority for these
activities will help expand the scientific and
engineering knowledge base on which the nation's
future energy options depend.
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-- General science.
* The proposed increase in budget authority for
research in high energy and nuclear physics will
enhance knowledge of the basic properties and
interactions of atomic nuclei, the constituents of
sub-nuclear matter, and the fundamental forces of
nature.
* Federal funding is necessary because the benefits are
mainly of a long-term nature.
o Nuclear energy research programs.
-- Nuclear fission.
* The $76.1 million increase in budget authority for
nuclear fision research programs is requested to
provide sufficient funding for two critical areas:
- The general breeder reactor systems program, which
are intended to create nuclear technologies that
produce more fuel than they consume, would continue
to be sufficiently funded because the long-term
financial benefits remain Insufficiently defined to
induce industry to finance these activities.
- Since they are critical for the protection of
citizens safety, remedial programs to treat or
stabilize radioactive wastes will-continue to be
sufficiently funded in 1984.
* Clinch River breeder reactor project.
- The increase in funding for the Clinch River
breeder reactor project will facilitate scheduled
construction activities. Since the 1983 continuing
appropriation was insufficient to finance these
construction activities, more funds are requested
for 1984.
-- Magnetic fusion.
* The $20 million increase would finance the start of
operations for new fusion facilities, including the
Large Coil Project, the Tritium Test Assembly, and
the Tokamak Fusion Test Reactor.
* These facilities are essential to the successful
development of fusion energy, which could ultimately
provide access to an essentially inexhaustible
domestic energy resource base.
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226
o Energy production and power marketing.
-- A major portion of the requested $312.9 million budget
increase is for continued construction of the
Portsmouth (Ohio) Gas Centrifuge Enrichment Plant.
* Federal support is intended to aid in the development
of a process to enrich uranium for commercial use at
much lower cost and far less risk.
* Lowering production costs is essential for the U.S.
to remain competitive in the world market.
o Regulation and information programs.
-- Federal Energy Regulatory Commission %(FE?RC).
* FERC charges regulated parties filing fees and
license charges, with these receipts going into the
Treasury as "miscellaneous collections."
* The Administration is proposing legislation to allow
these collections as offsetting receipts for the
agency.
* This would bring $60 million to FERC in 1984 and
reduce its need for new budget authority accordingly.
-- Economic Regulatory Administration (ERA).
* The 1984 request is primarily for completion of the
litigation of alleged pricing violations occurring
before the President's decontrol order of January
1981.
* Since relativel few cases should remain unresolved
in 1984, the President's proposal to reduce budget
authority from $27.5 million in 1983 to $11.9 million
in 1984 is justified as this program draws to a
conclusion.
o Energy. emergency preparedness.
-- Strategic Petroleum Reserve.
* The proposed budget reduction reflects the
increasingly favorable world oil markets and
significant improvement in our ability to protect
ourselves should a disruption occur. In particular,
there is more oil in storage and excess production
capacity in the world oil market, and self-defeating
price controls on oil have been dismantled.
* Still,-acquisition activities will result in a total
of 410 million barrels in storage by the end of 1984,
assuming a fill rate of 145,000 barrels per day, more
than sufficient to protect the U. S. In the event of
another oil shortage.
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o Synthetic Fuels Corporation.
-- The budget for the Corporation is outside the
Administration's control. All of the funds for
administration and programs have been made available by
the Supplemental Appropriations Act of 1980. These
funds have been delivered in three lump sums, which
total $14.9 billion.
* The Act made $6 billion available immediately upon
passage in July 1980.
* The Act made $6..2 billion available on June 30, 1982.
* $2.7 billion in unused funds made available for DOE
by the Act was transferred to the Corporation after
it was declared operational in February 1982.
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Questions and Answers.
o Federal responsibility. By further cutting Federal energy
programs, isn't the Administration putting U. S. energy
policy in the hands of the oil companies?
-- Largely because of this Administration's decontrol and
deregulation activities, oil companies have been given
much greater ability to find and produce oil. These
efforts, along with conservation and worldwide
production increases, have had the following results:
* Domestic oil production increased in 1982, reversing
a previous downward trend.
* Gasoline prices are down at least 10? per gallon
below their levels immediately before decontrol.
* Residential heating oil prices have begun to fall
after rapid run-ups in the late 1970s.
* Profits for the 27 largest U.S. oil and gas
companies for the first 9 months of 1982 were 26%
lower than during the first 9 months of 1981. In
1983, profits were down 3% from 1980.
-- Moreover, the Administration's continued support for
basic and applied research will facilitate the
provision of even more efficient and cost-competitive
energy sources and technologies. These w 11 further
diversify the nation's energy base.
o Alternative energy R&D. By sharply cutting back on
research, isn't the Administration abandoning essential
efforts to develop alternative fuels?
-- Quite the contrary. By limiting funding to long-term,
high-risk research activities, the government has
enhanced the country's ability to respond to its energy
needs with a broader technical base that will support
private sector efforts to develop and demonstrate a
greater diversity of more economical technologies than
those previously supported by the government.
-- The Administration's proposed reductions are in the
demonstration of the commercial viability of
technologies, which is more appropriately the role of
the private sector.
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o Protection against disruptions. By reducing regulatory
budgets, isn't the Administration increasing the
likelihood of chaotic energy markets in the event of
another energy disruption.
-- Regulations designed to minimize anticipated or actual
emergencies, such as the 1973 oil disruption, the 1977
natural gas shortage, and the 1979 oil shortfall, have
in fact made these problems far worse by holding prices
artificially low, discouraging domestic production, and
misallocating limited supplies.
-- With the deregulation of oil, the proposed deregulation
of natural gas and the availability of the Strategic
Petroleum Reserve, the U.S. is now far more prepared to
respond to disruptions in foreign 67 supplies because
the marketplace is better equipped to provide the
needed resources.
o Strategic Petroleum Reserve. How can the Administration
justify reducing budget authority for the SPR from $2.3
billion in 1983 to only $742 million in 1984?
-- The world oil market has changed dramatically for the
better since the SPR was first established.
* When the original plans were published in 1977, the
government forecast U.S. dependence on foreign oil at
11 million barrels per day by 1985. DOE currently
projects imports of only about 6 million barrels per
day, or 45% less.
* The most recent data provided by the Central
Intelligence Agency show that oil producing countries
in the free world have capacity to produce at least
an additional 10 million barrels per day. This
greatly reduces the prospect of a shortage from a
disruption involving one or two Middle East
producers.
-- Current SPR stocks are three times larger than two
years ago. They total 300 million barrels, or more
than 5 months' worth of protection should half of U.S.
imports a interrupted, 11 months' worth of protection
against cut-off of current eve s of Arab OPEC imports.
-- Counterproductive controls on U.S. oil markets have
been eliminated. As experience in other countries
clearly demonstrates, elimination of controls should
make any subsequent disruption less difficult to deal
with.
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230
o Dismantlement of DOE. Has the President given up on his
plans to dismantle the Department of Energy?
-- Early in'1982, the Administration proposed legislation
to the Congress to eliminate the Department of Energy
as a separate Cabinet Department.
-- Through administrative action and less extensive
legislation, this Administration has effectively
eliminated many of the portions of DOE that were not
appropriate for federal activity, such as:
* Price and allocation regulation of the oil market.
* Financing of commercialization activities.
-- The President continues to support elimination of the
Department of Energy as a separate Cabinet Department.
o Natural gas deregulation. Won't deregulating natural gas
prices hurt the consumer?
-- No. Deregulating prices as the Administration proposes
to do, is the best way to protect consumers from higher
prices.
-- Current law is defective. It encoura es production of
high-cost gas and discourages production of low-cost
gas. As a result, prices rise and consumers are worse
off.
-- The Administration proposal would restore market
incentives and encourage efficient production.
When the President decontrolled oil prices in 1981,
some said prices would go up to $2 per gallon. They
were wrong. We are confident that market forces will
also work to protect consumers of natural gas.
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History.
The federal role in protecting the environment,
extending to the previous century, intensified in the World
War II era. The General Land office, created in 1912, and
the Grazing Service, created in 1934, were combined into the
Interior Department's Bureau of Land Management in 1946.
The Commerce Department's Bureau of Fisheries (1871) and
Agriculture's Bureau of Biological Survey (1885) were
combined into Interior's Fish and Wildlife Service in 1939.
Various other environmental agencies have been
established over the last fifteen years. But today, the
Environmental Protection Agency (EPA) serves as the lead
federal agency for protecting the environment. Since its
creation in 1970, EPA has worked to control and abate air,
water, hazardous waste, radiation, pesticides and toxic
substances pollution.
Other agencies with an interest in environmental
protection include the National Oceanic and Atmospheric
Administration (NOAA), established by the Department of
Commerce in 1970, the National Weather Service, and
Interior's Bureau of Commercial Fisheries.
o Programs.
-- Pollution control and abatement.
* Includes federal efforts, and assistance to state and
local governments, to control and reduce air, water
and and potion through several means, including:
- Regulatory, enforcement and research programs.
- Planning grants to states.
- Training programs.
- Hazardous substance response fund.
- Oil spill pollution fund.
- Sewage treatment plant construction grants.
* In FY 1973, $1.1 billion was devoted to these
programs. In FY 1981, the level had grown to $5.2
billion. In FY 1983, the level is $4.3 billion.
-- Water resources.
* Involves funding of the Army Corps of Engineers,
Interior's Bureau of Reclamation, and Agriculture's
Soil Conservation Service to continue construction,
operation and maintenance of water resources
facilities.
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* IniFY 1973, $2.2 billion was spent on water resources
activities. In FY 1981, the amount was $4.2
billion. In FY 1983, the level is $3.9 billion.
-- Conservation and land management.
* The Department of Interior's Bureau of Land
Management administers approx mately 325 million
surface acres of land. The National Oceanic and
Atmospheric Administration provides grants to states
for coastal zone management. The Department of
Agriculture assists private land owners in providing
for the conservation of farm lands. It is also
responsible for management of the 191 million acre
national forest system.
* In FY 1973, conservation and management programs cost
$725 million. By FY 1981, the cost had jumped to
$2.6 billion. And in FY 1983, the cost is $2.7
billion.
-- Recreational resources.
* Includes operation and preservation of national
parks, recreation areas, historic sites, wild and
scenic rivers, fish hatcheries, and wildlife refuges.
* The budget for these programs was $566 million in FY
1973. By FY 1981, the level was $1.6 billion. And
in FY 1983, the level is $1.7 billion.
-- Other natural resources.
* Involves research, development and information
programs administered primarily by the U. S.
Geological Survey, the Bureau of Mines and the
National Oceanic and, Atmospheric Administration.
* In FY 1973, the budget for these activities totalled
$570 million. In FY 1981, the level was $1.5
billion. And in FY 1983, the level is $1.6 billion.
o Costs.
-- Total.
* In FY 1973, budget outlays for environment and
natural resources activities totalled $4.7 billion.
* In FY 1981, the level was $13.5 billion.
-- EPA.
* In FY 1973, outlays for EPA totalled $1.1 billion.
* In FY 1981, the level was $5.2 billion.
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o Administration Action to Date.
* President Carter requested $13.7 billion in budget
authority, including $5.3 billion for EPA.
* President Reagan requested $10.3 billion, including
$1.4 billion for EPA.
* Congress approved $11.2 billion, including $3.7
billion for EPA.
For FY 1983:
* President Reagan requested $8.4 billion for
environmental programs, including billion for
EPA.
* Congress approved $11.2 billion for environmental
programs, including $3.7 bT-llT-on for EPA.
The President's Proposals for FY 1984.
o The Administration requests a reduction in budget
authority from the 1983 level of $11.2 billion to
$8.9 billion in 1984. The request for EPA s for a
reduction in budget authority from the 1983 level of $3.7
billion to $3.6 billion in 1984.
-- Pollution control and abatement.
* Reduce outlays from the 1983 level of $4.3 billion to
$4.1 billion in 1984.
-- Conservation and land management.
* Reduce outlays from the 1983 level of $2.7 billion to
$2.1 billion in 1984.
Recreation resources.
* Reduce outlays from the 1983 level of $1.7 billion to
$1.5 billion in 1984.
Other natural resources.
* Reduce outlays from the 1983 level of $1.6 billion to
$1.4 billion in 1984.
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Justification (General).
o Proper focus of federal funds. The 1984 budget supports
two principal objectives:
-- The protection of the American people from harm by air
and water pollution or toxic substances. The only
activities that are proposed for increased funding are
those which deal with the protection of Amer can health
and safety, including:
* The Hazardous Substances Response Fund, or
Superfund", which is proposed for a-43% increase in
budget authority, enabling the effective operation of
its toxic wastes clean-up program.
* mining reclamation and regulatory rants, which will
be increased to allow all coal mining states to fully
implement surface mining reclamation and regulatory
programs.
-- More ap ropriate method of financing federal
activities.
* A proposed charging of user fees is intended to
require the users of federal lands and facilities to
pay a greater share for their upkeep and maintenance
since they receive the major benefit from these lands
and facilities., The budget proposals establish fees,
for example, for the use of recreation resources such
as national parks, forests, wildlife refuges, and
Corps of Engineers recreation facilities.
The reduction of funds for certain activities, such
as forestry research, is designed to eliminate the
burden on taxpayers to provide for projects which
benefit, and should be financed by, industry.
Justification (Specific).
o Pollution control and abatement.
-- The proposed reduction in outlays for EPA's regulatory,
enforcement and research programs reflects:
* EPA's continued emphasis on increasing efficiency and
accelerating the delegation of environmental programs
to the states.
* A roposed user fee for ocean dumping, which will be
initiated in 1984.
-- The proposed $300 million decrease in outlays for
sewage treatment plant grants reflects:
* The completion of expenditures of grants awarded
before 1982.
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o Water resources.
-- Most of the funds for water resources are for continued
construction of projects started in previous years.
-- The $650 million decrease in outlays reflects:
* The fact that many of these projects are nearing
completion.
* Increased receipts from three user fee pro osals.
The Administration proposes to recover capital and
operating expenses of deep draft and inland waterway
projects, and to permit the charging of fees at Corps
of Engineers recreation facilities.
o Conservation and land management.
-- Generally, chan es in these programs reflect the
following Administration efforts:
* To Improve the management and productivity of the
national forests and public lands.
* To streamline mineral leasing programs.
* To place maximum responsibility with the states for
coal surface mining regu atory and rec amation
programs.
-- The $283 million reduction in outlays for the
management of national forests, cooperative forestry
and forestry research reflects:
* Changes in financing due to initiation of the
reforestation trust fund in 1983.
* Administrative proposals to produce. timber,
recreation and other outputs at the lowest possible
costs.
* A reduction of federal funding for forestry research
projects that directly support industry, and for
other low-priority projects.
* The elimination of grants to the states for fire
protection and technical assistance in forest
management, which states can now adequately fund on
their own.
* Inclusion of a $59 million forest fire supplemental
in FY 1983; a supplemental for FY 1984 will be
transmitted with the FY 1985 budget.
-- The $38 million decrease in outlays for the management
of public lands reflects: .
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* Vastly simplified procedures for the administration
of the Outer Continental Shelf oil and gas leasing
program.
* Sales. of unneeded public lands.
o Recreational resources.
-- The $218 million reduction in outlays for recreation
resources programs reflects:
* Zero funding in 1984 for grants to states for the
acquisition of local recreation lands and facilities
and for historic preservation, justified by two key
factors:
- The low level of necessity for recreation
expenditures in a stringent budget year.
The tax incentives now a licable for historic
preservation.
* A proposed increase in fees for recreational use of
national parks, forests, and related facilities, so
that those who use them will pay more for their
upkeep and maintenance than the general taxpayer who
does not use them.
o Other natural resources.
-- The $130 million reduction in outlays for these
activities reflects:
* A reduction in funding at the U.S. Geological Survey
and the Bureau of Mines for applied research and
development, which s ould be the responsibility of
the mining industry.
* Savings in the budget for NOAA through Increasin the
share of costs borne by users of avlational marine
maps and charts and through shifting funding
responsibilities for other activities to direct
beneficiaries and state and local governments. In
addition, lower priority activities are being phased
out and the polar orbiting satellite system would
reduced to one satellite in orbit instead of two.
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Questions and Answers.
o Hazardous wastes. Won't the reduction in outlays for
environmental programs hamper the EPA's ability to protect
the American people from danger from hazardous wastes?
-- No. Budget cuts will not affect this area. In fact,
the outlays for the Hazardous Substnce Response Fund,
which provides money for cleaning up abandoned
hazardous waste sites and for responding to hazardous
chemical spills, will continue to increase under the
President's proposal.
* In 1982, the Fund had outlays of $77 million.
* In 1983, the Fund's outlays were more than doubled to
the level of $168 million.
* And in 1984, the President's proposal is for $246
million, a nearly 50% increase.
o Air and water pollution enforcement. Don't the cuts in
budget authority and personnel for air and water pollution
enforcement hamper EPA's ability in these areas?
-- No. In fact, cuts are not being proposed in EPA's
budget for enforcement.
* Air pollution enforcement.
- The Administration's proposal is to increase budget
authority for air pollution enforcement from the
1983 level of $20.5 million to $20.7 million in
1984.
- Staffing for enforcement activities will decrease
only marginally from the 1983 level of 370 people
to 366 people in 1984.
* Water pollution enforcement.
- The Administration proposes an increase in budget
authorit for water pollution enforcement from the
l T83 level of $24.6 million to $27 million in 1984.
- Staffing will decrease only slightly from the 1983
level of 608 people to 586 eo le in 1984. Since
the Administrations proposal is to delegate more
responsibility for water pollution enforcement to
the states, this marginal decrease of 22 employees
is more than justified.
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2Jg
o Sale of federal. lands. Isn't the Administration's
proposal to-sell federal lands sacrificing our nation's
precious natural heritage?
-- Through the years, the federal government has been
justifiably accused of mismanaging the lands it owns.
The biggest area of mismanagement has been the blanket
retention of such lands.
-- The Property Review Board, established by President
Reagan last year, has the mission of identifying unused
or underutilized real property owned by the federal
government and disposing of this property by sale or
transfer.
-- The President is not proposing a massive sale of
federal lands. Of the 714 million acres managed by the
Interior and Agriculture Departments, only about 12.5
million acres -- a mere 1.8% -- would even be
considered for sale.
* National treasures, such as parks and wilderness
lands, will not be considered for sale.
-- The benefits that can accrue from such sales are
great. TFe_y include:
* Local control of land use decisions.
* Increased local property tax receipts.
* The return of the property to productive economic
use. For instance:
- In the last 20 years, 94. military installations
were closed and transfered to state and local
governments and to private parties.
- The redevelopment of these facilities created
123,777 civilian jobs, 68 industrial parks, 40
municipal airports, and facilities for 48,00U_
college students.
* Increased federal revenues which can be applied to
retire part of the national debt.
- Sales are estimated to yield about $500 million in
1984.
* A reduction in cost to the taxpayers to maintain and
protect the property.
A reduction in outlays of $121 million is requested
for property management in 1984, pr marily due to
the sale of some property.
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History.
Early in the federal government's history, civil
servants were selected and employed principally through a
"spoils" system. But in 1883, the U.S. Civil Service
Commission (CSC) was established to administer a federal
personnel system in which selection would be based on
merit. A 1978 action divided the responsibilities of the
CSC between four agencies, with the basic operations and
personnel policies going to the new Office of Personnel
Management.
o Programs.
-- Employment activities.
* Recruitment program involves the conduct of
nationwide searches through regional and area
offices. The Job Information Center network posts
job requirements and other information in various
locations in hundreds of cities.
* Personnel policy and management activities address
such matters as pay, classification, standards for
promotion, labor-management relations, and
affirmative action for particular societal groups,
especially veterans and the handicapped.
Retirement programs.
* Employee contributions are required to make possible
the provision of benefits in the event of workers'
retirement or death. These contributions -- a set
percentage of the workers' salaries -- are
supplemented by contributions from the agencies for
which they work and by transfers from the general
fund to the retirement fund.
* Eligibility to receive full benefits exists for
workers who are 55 years old and have worked for the
federal government for at least 30 years, for workers
60 years old who have worked at least 20 years, and
for those at age 62 who have worked at least 5 years.
o Program changes.
-- In 1962, a system was instituted to offer retirement
cost-of-living increases when the Consumer Price Index
Increased by at least 3% and stayed at that level for
at least 3 months.
In 1969, Congress provided a 1% bonus to the workers to
compensate for the lag in getting raises after
increases in the CPI.
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-- In 1969, Congress enacted legislation to allow workers
to retire at age 55 with full benefits.
-- In 1976, Congress eliminated the 1% add-on to
retirement cost-of-living increases. This practice was
replaced:with a provision for semi-annual increases
based on the actual rise in the CPI.
-- In 1978, the mandatory retirement age for federal
workers was repealed.
o Coverage.
-- Employee pay.
* In 1970, the number of non-Postal, full-time workers
on the civil service rolls was 2.1 million.
* In 1981, the number, including Postal annuitants, was
2.0 million.
* And in 1982, the number was 2.0 million.
-- Retirement.
* In 1970, the number of retired Federal employees and
survivors receiving benefits was 958,000.
* In 1981, the number, including Postal annuitants, was
1.8 million.
* And in 1983, the number is 1.9 million.
o Costs.
-- Employee pay.
* In FY 1970, the federal employee payroll totalled
$20.4 billion.
* In FY 1981, the payroll totalled $47.5 billion.
* And in FY 1982, the payroll totalled $49.6 billion.
-- Retirement.
* In FY 1970, the amount of money paid out in
retirement benefits was $2.7 billion.
* In FY 1981, the level was $17.8 billion -- a more
than five-fold increase in a decade.
* And in FY 1982, the level was $19.5 billion -- a 10%
increase in a single year.
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o Administration Action to Date.
-- For FY 1982:
* President Reagan proposed, and Congress enacted,
annual cost-of-living increases rather than the
semi-annual increases that had existed s nce 1976.
* Savings were projected to be $253 million in FY 1982
and $3.2 billion between FY 1983 and 1985.
-- For FY 1983:
* President Reagan and Congress agreed to limit a
increases for blue collar workers to that for white
collar workers -- 4% -- In FY 1983. This measure is
expected to save $1 billion.
* President Reagan proposed, and Congress enacted,
three retirement reforms that -.ere projected to save
$3.9 billion over three years.
- Delay the cost-of-living increases for federal
retirees by 1 month for each of the following three
calendar years.
- Reduce the cost-of-living adjustment to one-half of
CPI for federal retirees under age 62, but not for
survivors and the disabled.
- For military retirees who are employed in civil
service positions, reduce their civil service pay
by the dollar amount of military retirement COLA
that they receive.
The President's Proposals for FY 1984.
o Employee salaries.
-- The President's budget anticipates granting no pay
increases for federal workers in FY 1984.
o Retirement.
-- Require new federal employees to be covered by both
Social Security and the Civil Service Retirement
System.
-- Move the age at which an employee may retire with
full benefits from age 55 to age 65, but permit partial
payment of retirement benefits at age 55 for
non-disabled individuals with 30 years of service.
* Reductions would be 5% per year for each year of
retirement before age 65.
* This reform would be phased in over a ten year
period.
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-- Increase payments by employees and their agencies into
the Civil Service Retirement Trust Fund to 9% in 1984,
and to 11% in 1985. Currently, employees and their
agencies each pay 7% of the employee's salary into the
system, as well as T.3% each for Medicare retirement
benefits.
-- COLA for retiree's pensions.
* For 1984, apply to federal retirees the six-month
freeze on COLAs enacted for Social Security
recipients.
* In 1985, allow full COLAs for retirees 62 and older
based on the CPI. Retirees below age 62 would
receive 50% of that amount.
-- In three years, the office of Personnel Management
would return to the practice (called "High Five") of
basing retirement benefits on the average of the
employee's five highest yearly salaries. In 1969, this
practice had been replaced by an averaging of the three
highest yearly salaries ("High Three").
Justification (General).
o Reduce costs. The President's proposals are expected to
reduce government costs:
-- For payroll by $3.3 billion in 1984.
-- For the. retirement system by $1.7 billion in 1984.
o Restore the federal retirement system to sound financial
footing.
-- The retirement system and its level of benefits grew
sharply through the 1970s, to the extent that there
exists today $500 billion in unfunded liability.
-- The 7% of employees' salaries contributed into the
retirement system amounts to only 20% of the level of
funds needed to pay retirement benefits each year. The
other 80% comes from the government, and ultimately the
taxpayers.
-- The President's proposal to increase employee
contributions to 9% in 1984 and to 11% in 1985 would
result in the employees providing 50% of the amount
needed to pay retirement benefits, thus placing the
system on a more sound financial footing.
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o Bring the federal employment and retirement system more in
line with private sector.
-- The elimination of cost-of-living pay increases during
times of excessive spending parallels the private
sector practice of holding salaries level,, or even
reducing them, during times of financial difficulty.
-- The reduction of retirement benefits for those who
retire early will bring federal retirement policy more
in line with private sector practices, thereby reducing
some of the financial strain on the federal retirement
system.
Justification (Specific).
o Employment.
-- A pay freeze for federal employees is in order.
* Federal costs need to be contained.
- In 1970, federal employees' salaries totalled $20.4
billion.
- Now, they consume $49.6 billion, or 2 1/3 times as
much.
* The decline in the rate of inflation makes the pay
freeze practical.
- The inflation rate has fallen'by more than
two-thirds, from 12.9% in 979-1980to less than 4%
for the last 12 months.
- Therefore, employees would not be hurt
significantly by a pay freeze now.
o Retirement programs.
-- Coverage by both Social Security and the Civil Service
Retirement System.
* This provision was necessary as part of a package to
place Social Security back on a sound financial
footing.
* The Office of Personnel Management has stated that it
is prepared to offer an integrated Social Security
pension plan for new federal workers.
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-- Benefit restraint.
* Encouraging em to ees to work longer will both
increase contributions and reduce payout drain on the
beleaguered retirement system.
* By reducing benefits for early retirement, many
employees with valuable knowledge and experience will
be encouraged to extend their government service.
This should increase government efficiency, and
reduce training costs.
-- Increased contributions.
* Though benefits have become increasingly costly, the
percentage of salary employees contribute into the
retirement system has remained constant since 1969.
* The proposed increase in employee contributions would
reduce the amount the taxpayers must provide.
* COLA reforms are necessary because of the enormous
drain such automatic benefit increases have on
federal revenues.
- COLAs are not funded under the retirement system's
current financin structure. Thus, the payment of
cost-of-living increases is a current tax burden
that must be paid by existing workers.
- Over the last 15 years, COLAs have boosted
retirees' pay faster than active emp o~ yees' pay has
increased.
-- Return to "High Five".
* High Three was instituted in 1969 to keep benefits
abreast with high inflation.
* The return to the High Five computing of benefits is
more appropriate now that the President's economic
program has substantially reduced the level of
inflation.
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Questions and Answers.
o Fairness to federal workers. Don.'t the pay freeze, Social
Security coverage, pension contribution increase, benefit
reductions and the earlier hiring freeze constitute an
all-out assault on federal workers?
-- No. These measures are all necessary steps to keep the
federal employment costs within reasonable limits and
to keep the federal retirement system solvent.
* From 1970 to 1982, the total federal payroll
increased from $20.4 billion to $49.6 billion.
* From 1970 to 1982, retirement costs increased from
$2.7 billion to $19.5 billion.
-- Current federal civil service employees will continue
to be covered only by the Civil Service Retirement
System; they will not have to pay Social Security taxes
as long as they continue working tot the tederal
government.'
* The Office of Personnel Management has stated that it
is prepared to offer an integrated Social
Security-pension plan for new workers.
-- Even with these changes, the federal systems would be
substantially more generous than those in the private
sector.
* Some studies have indicated that even after these
changes, a and benefits for federal workers would
often remain better than those available to private
sector workers..
* The President's proposal -- allowing unreduced
benefits for retirees at age 65 and reducing them by
5% per year for those who retire as early as age 55
-- would result in retirement benefits for federal
employees that are as good as, or better than, those
offered to most private sector retirees. Beyond
1984, the Federal system would still provide
cost-of-living adjustments. Few private plans offer
COLAs fully indexed to the CPI.
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o Cost-of-living increases. Federal employees have to meet
expenses just like everyone else. If prices are going up,
why shouldn't they get a cost-of-living increase?
-- The pay system was never intended to give
cost-of-living increases merely for the sake of giving
COLAs,'but to provide annual increases to keep federal
pay comparable with private sector pay. Some data
indicates that the method for measuring comparability
is faulty and that federal employees are receiving more
p1Z than their private sector counterparts.
-- The pay law gives the President the authority to set
lower pay increases when economic conditions makeTt
necessary to do so.
-- With the inflation rate having fallen by two-thirds,
freezing pay increases for a single year would not be
harmful to federal workers.
o Retention of high quality workers. How can you expect to
retain high-quality employees when you freeze their pay
and increase their payroll taxes?
-- Since federal pay and benefits remain comparable and
sometimes better than those in the private sector, no
retention problem is anticipated.
-- If a recruitment or retention problem ever existed
because of private sector competition, the government
could use its Special Salary Rates Program to maintain
its competitive position in those areas. This program
allows for the provision of salary beyond the normal
scale.
-- Promotions and limited merit pay increases would still
be permitted.
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History.
The Legal Services Corporation (LSC) is a
quasi-governmental agency established by Congress in 1974.
The purpose of the LSC is to provide funding for legal
assistance in civil cases to low-income persons who would
otherwise be unable to afford legal counsel.
o The Program.
-- The LSC is governed by an 11-member board of directors,
which makes decisions independent of the Administration
or state and local elected officials.
-- The corporation funds legal aid programs for low-income
persons, and makes grants to and contracts with
individuals, firms, corporations, organizations, and
state and local governments for the purpose of
providing legal assistance to these clients.
o Program Changes.
-- Congress has repeatedly sought to curb ,LSC abuses by
limiting the types of legal cases and operating methods
of local grantees.
-- LSC's authorization expired in 1980. For 'the past two
years, Congress has been unable to agree on the
appropriate organizational structure and funding
mechanism for legal aid.
-- Initial. outlays for the Legal Services Corporation were
$72 million in FY 1975.
-- This amount rose, by an average annual growth rate of
35%, to $324 million in FY 1981.
o Administration Action to Date.
-- For FY 1982:
* President Carter proposed outlays of $347
million.
* President Reagan proposed to eliminate the
LSC outright.
- The President requested no new budget authority --
only $35 million in outlays to cover the costs of
phasing out the corporation.
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* Congress refused to eliminate the agency, approving
$241 million in budget authority; actual outlays for
that year came to $258 million.
-- For FY 1983:
* President Reagan again proposed the elimination of
LSC, with phase-out outlays of $12.8 million.
* By continuing resolution, Congress maintained the
agency, and its FY 1982 funding levels.
The President's Proposals for FY 1984.
o The Administration proposes that the LSC not be
reauthorized and that no further separate funding
be provided.
-- LSC funding already appropriated by Congress would be
used to discharge responsibilities in existing cases,
and to shut down the agency.
o As an alternative to the LSC, the Administration
proposes giving states the flexibility and discretion
to use block grant funds for legal services activities,
and encouraging private attorneys to fulfill their
ethical obligations to serve the poor.
Justification.
o LSC funds have been used not so much to help the poor
with their personal legal problems -- which was the intent
of the original law -- but to create "rights" and
"benefits" through the courts that Congress and the state
legislatures have not granted,.and in some cases have
refused to grant.
o Even in the best of budget times, separate federal funding
for legal aid is not appropriate and is not an effective
way to meet the legal needs of low-income families.
o The Administration's $2.5 billion Social Services Block
Grant includes, and can be made to further include,
adequate authority to fund whatever legal services
activities states may wish to provide for their citizens.
-- These sources of funds can give more flexibility to
the states, and permit them to offer legal services
that are more directly responsive to the needs of their
citizens than those offered by the present Legal
Services Corporation.
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Questions and Answers.
o The "controvers?yN" over LSC. When critics say that the
LSC is "controversial," aren't they really saying that
it's doing its job? Helping the poor is controversial to
some people.
-- Helping the poor is not the issue. The issue is that
the LSC has often not devoted itself to helping the
poor in individual legal matters as Congress intended.
* Congress has repeatedly sought to limit LSC involve-
ment in outrageous class action lawsuits involving
such areas as transsexual rights and limitations on
research to improve agricultural productivity.
o Conservative vendetta. Even allowing that LSC has
overstepped its bounds on a few occasions, is that any
reason to abolish the agency? Isn't the drive against
LSC the work of conservative ideologues?
-- LSC's misguided social activism has drawn fire from
liberals as well as conservatives.
* For example, in an editorial on the agricultural
productivity case cited above, The New Republic
(hardly a house organ of conservative ideologues)
declared that the case was an example of how "legal
aid lawyers use poor people as guinea pigs in an
attempt to impose through the courts some fanciful
middle-class view of social justice."
-- Again, the issue here is not legal aid for the poor;
the issue is whether LSC is the best way of providing
this assistance.
o Reagan reform a sham. If LSC is abolished, will the poor
get any legal aid at all? It is easy enough to say, "Let
the states or private attorneys do the job," but will they
do it?
-- The states.
* The states will be able to use federal block grant
money to set up their own legal aid programs. With a
separate Corporation and its direct federal funding,
states have had little incentive to use other funds
for legal aid.
* States and localities are now actively experimenting
with a variety of approaches for meeting the legal
needs of the poor -- pro bono panels and clinics
staffed by private attorneys, volunteer efforts by
law firms and corporate legal departments, and
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funding new legal aid programs from court filing
fees and interest on lawyers trust accounts (IOLTA)
are some of the methods that are beginning to be
tried.
-- Private attorneys.
* Private attorneys have a duty to assist indigent
clients. The American Bar Association Code of
Professional Responsibility states:
"The basic responsibility for providing legal
services for those unable to pay ultimately
rests upon the individual lawyer....Every lawyer,
regardless of professional prominence or
professional workload, should find time to
participate in serving the disadvantaged."
* There are nearly 600,000 attorneys in this country,
and the gross income of law firms exceeds $20 billion
per year. If each attorney devoted less than one
hour per week to helping the indigent, they could
provide more legal services than the whole
quarter-billion dollar LSC program.
* Restrictions on advertising, competition, and other
obstacles to the free play of market forces in the
legal profession have been significantly reduced in
recent years.
- This development has already increased the
availability of low-cost legal services.
- Private legal clinics now advertise routine
services, such as drafting wills, filing divorces,
and handling landlord/tenant and consumer finance
problems at low flat rates.
Law schools.
* Some law schools operate legal clinics: the poor get
free legal advice, and law studehts get work
experience.
* With 35,000 graduates per year, greater involvement
of law schools would significantly increase the
amount of services available.
-- There is every reason to believe that these trends will
continue, and that significant legal assistance for the
poor can be made available without the current
quarter-billion cost to the taxpayers.
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History.
During the late 1940s and early 1950s, America's
virtual monopoly on intercontinental nuclear systems meant
that our requirements for conventional war were relatively
small. The Soviet Union understood that we might respond to
a conventional attack against ourselves or our allies with
an atomic attack on the aggressor.
As the 1950s ended, however, the Soviets began
developing and acquiring long-range nuclear capabilities.
As their capacity for long-range and conventional attack
continued to grow, the U.S. threat to respond to a
conventional attack with massive nuclear retalliation became
less credible; hence, it was not an effective deterrent.
Accordingly, the U.S. has had to maintain its
conventional forces at a level sufficient to respond to
potential non-nuclear challenges. In particular, we have
had to maintain land forces in Europe and the Far East, and
naval forces in the Pacific and Indian Oceans and in the
Mediterranean Sea.
Naval power has become increasingly important as U.S.
strategic dependence on foreign resources has grown. This
country relies on sea traffic to supply 69 of its 72
critical raw material requirements, to say nothing of the
importance of the sea to our international commerce. We
need a strong Navy to ensure that the sea lanes are kept
open.
o The Program.
-- Conventional, or general purpose forces, are the
largest component of the U.S. defense program.
* To be fully effective, these forces must be supplied
with up-to-date weapons and equipment, as well as
spare parts and munitions.
* In addition, we must have the air and sea cargo and
troop transport systems to deliver these forces to
crisis areas anywhere in the world.
-- Conventional forces to be supported include the
following:
* Land forces, including Army, Navy, and Marine Corps
divisions.
* Tactical air forces, including those of U.S. Air
Force, Navy, and Marine Corps.
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* Naval forces, including aircraft carriers,
nuclear-powered attack submarines, general purpose
warships, and amphibious assault ships.
* Airlift and sealift forces.
-- Budget authority for general purpose forces was $27.7
billion in FY 1970, rising to $68..8. billion in FY 1981.
-- This represents only about 1% growth in real terms over
the 12-year period.
o Administration Action to Date.
-- For FY 1982:
* President Carter proposed a total of $106.1 billion
for general purpose forces, airlift and sealift,
guard and reserve, and supply and maintenance.
* President Reagan proposed a total of $125.3 billion
for these functions.
* Congress approved a total of $122.7 billion.
-- For FY 1983:
* President Reagan proposed a total of $146.9 billion
for these functions.
* Congress approved a total of $136.6 billion.
The President's Proposals for FY 1984.
o Readiness.
-- Improved readiness is the Administration's first
priority for conventional forces.
-- Increase aircraft spare part purchases from $6 billion
in FY 1983 to $7.9 billion in FY 1984.
-- Increase munitions procurements from $9 billion in FY
1983 to $11.6 billion in FY 1984.
* This includes the procurement of new highly-capable
tactical missiles and torpedoes as well as
artillery and tank ammunition.
-- Increase Operations and Maintenance funds from
$66.3 million in FY 1983 to $74 million in FY 1984 --
an increase of 12%. This would:
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* Provide support for new equipment put into service in
1984.
submarines.)
-- Specific conventional force ships included are:
1984
1984-88
* Attack submarines
3
21
* Cruisers
3
14
* Amphibious ships
2
13
* Escorts and auxiliaries
8
71
* TOTAL
16
119
* Reduce real property maintenance backlogs.
* Make possible improved unit and individual training.
o Navy shipbuilding.
-- The 1984-88 five-year shipbuilding plan includes 124
new ships, of which 119 are for conventional forces.
(The remaining five ships are Trident strategic
o Mobility forces.
-- Procure of four C-5B cargo aircraft and eight KC-10
cargo/tanker aircraft.
-- Convert four privately-owned aircraft in the Civil
Reserve Air Fleet (CRAF) to permit them to carry
military cargo in emergencies.
-- Further enhance U.S. ability to offload commercial
ships where port facilities are not available.
o Modernization of aircraft.
-- Wherever efficient, the Administration is proposing
multi-year procurements to reduce costs.
-- Air Force aircraft.
* Increase the number of tactical aircraft to be
procured from 1982 to 1984 by 50% above the
insufficient levels proposed by the Carter
Administration.
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* Procure 48 F-15 and 120 F-16 Air Force fighter
aircraft for FY 1984.
-- Navy aircraft.
*.Procure 24 F-14 and 84 F/A-18 fighter aircraft, and
32 AV-8B attack aircraft.
* Continue production of P-3 anti-submarine aircraft,
A-6 attack aircraft, E-2C early warning aircraft,
SH-60B and SH-2F anti-submarine helicopters, CH-53E
heavy lift helicopters, and a variety of utility and
training aircraft.
-- Army aircraft.
Continued procurement of the Army's AH-64 attack
helicopter and the UH-60 utility helicopter.
o Land forces.
-- Major systems include the M-1 Abrams tank,'the
Bradley Fighting Vehicle, and the Sergeant York
air defense gun.
--.Produce the Pershing II long-range tactical. ballistic
missile.
Justification.
0 Readiness.
-- The plans of the previous administration were based on
the assumption that any future`arrhed conflict in which
the U.S. was engaged would be of short duration.
-- This assumption led to the procurement of spare. parts
and munitions at levels insufficient to provide for
adequate training with sufficient reserves for actual
wartime use.
* Additional funding will increase these stocks to
adequate levels.
* Quality of munitions will be improved to offset
potential adversaries' numerical advantages in some
weapons, such as tanks.
-- Additional Operations and Maintenance funding is
required to provide adequate training and equipment
operating performance and to support the large
amount of new equipment entering the force.
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* Maintenance of some new equipment is more expensive
than that for the less-capable equipment that is
being replaced.
* Additional unit and individual training is needed
to enable U.S. forces to perform more effectively.
* Additional funds are also needed to permit
maintenance and modernization that have been
delayed from previous years because of insufficient
funding.
o Navy shipbuilding.
-- The United States must be able to maintain control
over vital-sea-lanes for commerce and military
resupply.
-- In wartime, more than 95% of U.S. military resupply
will travel by sea.
-- While U.S. force levels were being reduced in 1970s,
the Soviet Navy was being expanded.
* The Soviet Navy has been transformed from a coastal
defense force into an ocean-going force.
* The Soviet Navy is now designed to perform tactical
and strategic missions in waters distant from the
Soviet Union.
-- In 1982 and 1983, the Reagan Administration initiated
programs to rebuild the U.S. Navy into a 600-ship
force by the end of the decade.
* These programs would be continued in FY 1984 at
a sufficient funding level to meet this goal.
* Increased production of attack submarines would
permit the U.S. to reinforce an area where it holds
a significant technological advantage over the
Soviet Union.
* Amphibious ship production would increase U.S.
capability to project defensive forces into remote
potential trouble spots such as Southwest Asia.
* Expanded production of other ships such as escorts,
mine warfare ships, and auxiliaries, would improve
U.S. ability to support existing forces.
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o Mobility forces.
-- Mobility is essential for the effective and timely
deployment of combat forces.
* These forces move personnel and materiel during
an initial deployment, and provide sustaining
combat support thereafter.
-- Current U.S. mobility forces cannot move the required
combat or combat support units fast enough to
effectively counter military aggression in Europe,
Korea, or in the Southwest Asia/Persian Gulf region.
-- Elimination of shortages in oversized military cargo
aircraft, fast logistics ships, prepositioned ships,
and support equipment is essential to improve U.S.
military capability during the first thirty days of a
crisis.
* The procurement of C-5 aircraft would permit the
U.S. to airlift heavy, large combat. equipment that
will not fit in other types of existing aircraft.
* The converted SL-7 fast logistics ships would be
capable of rapidly transporting heavy, land-force
combat equipment.
* Prepositioning of equipment and supplies aboard
ships in the Southwest Asia region will reduce the
time required for deployment of heavy forces.
o Aircraft and land force.
-- For the U.S., in concert with its allies, to maintain
sufficient conventional forces to deter potential
aggression, our forces must be provided with adequate
numbers of new, modern equipment.
-- In the last decade, the Soviets have produced vast
amounts of new, highly-capable military equipment --
tanks, armed helicopters, combat aircraft, air combat
missiles, and other sophisticated items.
* The traditional U.S. qualitative edge in this
field has been considerably narrowed, making
Soviet quantitative gains more serious.
* The Soviet military buildup has enhanced their
ability to project force at far-distant points around
the globe -- thus increasing the likelihood that they
will rely on military rather than diplomatic means to
promote their foreign policy goals.
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-- Previous administrations delayed necessary
modernization, held production rates at inefficient
levels, and procured insufficient quantities of
critical wartime supplies.
-- Continued acquisition of capable weapon systems such
as the M-1 tank and the F-14, F-15, F-16, F/A-18, and
AV-8B tactical aircraft and other advanced systems
will enable U.S. forces to deter and, if necessary,
counter Soviet aggression anywhere it might threaten
U.S. or allied vital interests.
* Our armed forces' capability for fighting at night,
in poor weather, and in all types of climates, would
increase.
* Lighter weight anti-armor vehicles would improve U.S.
ability to respond with speed to crises in remote
areas.
* Procurement of more maintainable and reliable weapons
such as the F/A-18 aircraft would achieve greater
combat efficiency.
* Procurement of new advanced tactical command,
control, and communications systems would enhance
combat flexibility and force effectiveness.
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Questions and Answers.
o Why spend more? If lower readiness and procurement-levels
were acceptable to previous administrations at a time-,;when
the economy was stronger than it presently is, why must we
have higher readiness and procurement levels now?
-- Recent Soviet aggression in Afghanistan and repression
in Poland clearly demonstrates that the Soviets ?are,
willing to use their enhanced military capabilities.
-- In any future crisis or conflict, the U.S. will not
have time to develop its own military abilities: we will
have to respond with what we have ready at the time.
-- More important, U.S. military readiness could eliminate
the need to for a response by . discouraging Soviet
military adventurism in the first place.
-- The cost of not being sufficiently prepared could turn
out to be far higher than the cost of military
preparedness itself.
o .Cost overruns. Why does an Administration that says it
is going to root out waste in government tolerate cost
overruns on weapons systems?
-- When this Administration came into office, it.
discovered that many systems had been underpriced;
responsible pricing will raise expected production
costs somewhat.
-- At the same time, the Administration is taking steps
to minimize cost overruns.
* In the past, inflation has been a significant factor
in the cost-overrun problem.
* Because the Adminstration has reduced inflation by
more than two-thirds, it has, concommitantly,
lessened the potential for cost overruns in weapons
systems.
The Administration's defense planners have'made major
efforts to produce military hardware more
efficiently.
* In 1981, the Defense Department established a
cost-analysis improvement group to provide
independent cost estimates for weapons acquisition.
* The Administration also established the first
Inspector General in the Defense Department, sworn
into office on April 16, 1983.
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-- Some cost increases are inevitable in the development
and production of any new Mechanical system.
* Because the system has not been produced in the
past, its costs may be difficult to estimate with
absolute precision.
* Engineering changes that greatly enhance weapon
quality are often discovered in the development
process, and can therefore raise costs above
initial estimates.
* This problem occurs in all parts of the economy;
it is no worse in military than in non-defense
production.
o Are our ships "sitting ducks?" Why should we be spending
billions to increase the size of our Navy, when a ship can
be sunk with one cheap missile?
-- U.S. ships typically cannot be sunk with one missile.
-- The U.S. Navy uses a concept of "defense in depth."
* The actions of enemy airplanes, submarines, and
surface ships that could launch missiles against
U.S. ships are monitored by a variety of sensors to
permit them to destroy the missiles before they can
reach the ships.
* Those enemy weapons that survive this outer barrier
of missile-equipped aircraft and submarines must then
face even greater defensive systems consisting of
additional missile-equipped aircraft and advanced
ships, such as the U.S.S. Ticonderoga, which was
commissioned January 22.
- The Ticonderoga, and ships of her class, will be
equipped with the AEGIS system, which can intercept
and destroy incoming enemy missiles.
* If any enemy missiles should slip through that ring
of defense, U.S. ships are equipped with high-speed
guns that can destroy the missiles before they hit
the ship.
-- Finally, U.S. ships are designed to be more resilient
and U.S.'Navy crews more highly trained in damage
control than those of other navies.
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FOREIGN ECONOMIC AND FINANCIAL ASSISTANCE
History.
Economic assistance became a major part of U.S. foreign
policy in the aftermath of World War II. Its object was to
contain the spread of international Communism by
strengthening the economies of free world nations.
Assistance of this type may be said to date from the
Marshall Plan, which was launched in 1947 to rebuild
war-devastated Western Europe. During the 1950s and 1960s,
the geographic focus of economic aid shifted from Europe to
the developing nations of Asia, Latin America, and Africa.
The U.S. has supported the efforts of many countries to
move from poverty to relative prosperity. More obvious
successes in this area include South Korea, and Taiwan
o The Program.
-- Currently, more than 60 developing countries receive
U.S. bilateral aid, while many more receive U.S.
assistance through multilateral aid.
-- Bilateral aid is rendered directly by the U.S.
to the recipient country, principally through:
* The Agency for International Development (AID),
which makes loans and grants to countries in Asia,
Africa, and Latin America, for projects aimed at
improving food production, health, energy, and
human resources development.
* P.L. 480 food aid, through which concessional
loans and humanitarian grants provide U.S.
agricultural commodities to developing countries
for humanitarian purposes and also to help
develop export markets for American firms.
*
The
Peace
Corps, which places volunteers
abroad
to
promote
better understanding between
peoples
and
assist
in small-scale development activities.
* Refugee assistance, which provides humanitarian aid
to refugees in foreign countries, and finances
transportation and initial placement of refugees
coming to the United States.
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Multilateral assistance is provided through
international organizations to which the United
States belongs. There are two major channels for
this kind of assistance:
* Multilateral development banks, comprising the
World Bank and its affiliates, and the regional
banks for Asia, Africa, and Latin America.
These banks make loans at near-market terms
and long-term low interest loans to finance
development activities.
Industrialized countries support these banks with
direct contributions and borrowing guarantees.
The U.S. is the largest single contributor to the
World Bank, providing about 20 percent of the
bank's capital.
* International organizations and programs, which
make grants for development, and humanitarian and
other activities.
- The United States supports these efforts through
voluntary contributions; i.e., through donations
over and above the annual assessments this country
pays as a member of various international
organizations.
- Examples include contributions to the United
Nations Development Program, and the United Nations
Children's Fund (UNICEF).
o Costs.*
Budget authority for economic and financial aid totaled
$2.7 billion in FY 1970, including:
* $1.9 billion for bilateral aid.
* $810 million for multilateral aid.
* Over the years, various foreign aid programs have been
reported under different budget headings. For the
purpose of comparison, all figures given above reflect
the funding levels of all programs presently reported
as bilateral and multilateral economic aid, even if
certain programs were reported under different headings
in earlier years.
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-- Budget authority approximately doubled by FY 1980,
totalling $5.3 billion, including:
* $2.7 billion for bilateral aid.
* $2.6 billion for multilateral' aid.
o Administration Action to Date.
-- For FY 1982:
* President Carter requested total budget authority
of $6.7 billion, including:
- $4.0 billion for bilateral aid.
- $2.7 billion for multilateral aid.
* President Reagan requested total budget authority of
$5.1 billion, including:
- $3.4 billion for bilateral aid.
- $1.7 billion for multilateral aid.
* Congress approved a total budget authority of $4.6
billion, including:
- $3.1 billion for bilateral aid.
- $1.5 billion for multilateral aid.
-- For FY 1983:
* The Reagan Administration requested budget authority
of $4.7 billion, including:
- $2.9 billion for bilateral aid.
- $1.8 billion for multilateral aid.
* Congress approved these amounts.
The President's Proposals for FY 1984.
o Increase total budget authority to $4.9 billion, or 2%
above the amount requested for FY 1983, including:
-- $3.1 billion for bilateral aid.
-- $1.8 billion for multilateral aid.
o Specific program changes:
-- Increase budget levels for AID bilateral programs and
multilateral banks.
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-- Reduce budget levels for refugee assistance programs
and international organizations.
-- Maintain budget levels at or near 1983 funding for
P.L. 480, Peace Corps, and smaller aid programs.
Justification (General).
o Create a new, more effective approach to foreign aid.
-- In the past, foreign aid programs have been wasteful
and counterproductive.
* Huge sums have been lost through official corruption
or else squandered on costly "show" projects that
have little to do with the recipient country's real
economic needs and potential.
* Worse yet, foreign aid has bred dependence by
enabling recipient countries.to avoid facing up to
their economic problems.
-- In contrast to previous administrations, President
Reagan's program emphasizes free market solutions to
the problems of developing nations.
* The President has urged these countries to adopt
free trade and other policies designed to encourage
foreign investment.
* Under this Administration, American aid will be
directed toward promoting self-help among the
developing nations, rather than toward dependency or
propping up failed socialist experiments, through
these mechanisms:
- Stimulating international trade by opening
up markets, both within individual countries
and between countries.
- Tailoring particular development strategies to
the specific needs and potential of individual
countries and regions.
Guiding assistance toward the development of
self-sustaining productive capacities, particularly
in food and energy.
Improving in many of the countries the climate for
private investment and the voluntary transfer of
technology that comes with such investment.
Creating a political atmosphere in which practical
solutions can move forward.
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-- The foreign aid programs will accomplish these, goals
with a budget only slightly higher than last year's.
Justification (Specific).
o Increases are proposed only for those programs that have
proved effective. .
-- AID bilateral assistance programs, where properly.
designed, can be used to encourage more beneficial"
more beneficial economic policies through;
* Expanding the role of the local private sector.
* Sharing appropriate U.S. technology and know-how.
* Creating indigenous institutions, such as banks. and
other lending authorities, that will foster economic
growth.
-- Multilateral banks.
* "Soft" loans (long-term, nominal interest) from the
World Bank and regional development banks assist
developing nations in building roads, bridges, dams,
and other "infrastructure" projects that will support
economic growth,
o Reductions.
-- Refugee assistance.
* The number of people who need refugee assistance is
declining.
-- International organizations.
* Those organizations presently supported by the
U.S. are frequently less effective than other
programs that address the same goals.
o Maintain at or near current levels.
-- The P.L. 480 program, by transferring surplus U.S.
agricultural products, helps both to support American
farmers' incomes, and to relieve hunger around the
world.
-- Current levels of support are adequate to fulfill this
function.
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Questions and Answers.
o How much aid? Other industrialized nations -- Sweden,
West Germany, Japan, and Great Britain among them --
devote higher percentages. of their respective GNPs to
foreign aid than the U.S. does. Shouldn't this country be
doing more?
-- The U.S. is already providing significant amounts of
direct aid.
-- But U.S. assistance to developing nations cannot be
measured simply by the number of dollars devoted to
"foreign aid."
* The U.S. market is one of the most open in the world.
- For developing countries, trade is more effective
than aid in stimulating their economies.
- U.S. trade with non-OPEC developing countries is
twice their total aid from all other sources.
* President Reagan's decision to deregulate oil prices
was a major factor in reducing the price of oil
worldwide.
- The dramatic surge in oil prices during the 1970s
was the principal reason for the great increase in
the developing countries' external debt.
- Lower oil prices will provide more help to develop-
ing nations than any expected amount of aid could
provide.
* U.S. defense expenditures support stability both
globally and regionally.
- Stability is essential for development.
- Furthermore, many of those nations that contribute
a higher respective share of their GNPs to foreign
aid are able to do so because the U.S. shoulders
the largest share of the free world Ts defense
burden.
o Free enterprise for everybody? But how will encouraging
free enterprise policies help the Third World? President
Reagan's approach to foreign aid sounds like a glib excuse
for doing as little as we decently can.
-- Free enterprise works as well for the developing
countries as it does the the developed countries.
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266
* Hong Kong, for example, is a rock that doesn't
even have its own water supply; yet it has
prospered without massive infusions of foreign
aid.
* Singapore has succeeded on much the same terms.
* Taiwan and Korea, two other success stories
among the developing nations of Asia, were forced
to adopt realistic economic policies by the
impending withdrawal of American aid in the early
1960s.
-- The U.S. is actually providing more aid in FY 1984
than during the previous year, but is making sure that
the recipient countries adopt effective economic
policies so that the aid has maximum beneficial effect.
o Bank bailouts. Isn't the proposal that the U.S.
contribute more to international lending institutions
aimed more at helping those U.S. banks that have made
large loans to developing countries than at helping
those countries themselves?
-- Loans to assist developing countries in meeting their
financial obligations will be "hard" loans from the
International Monetary Fund (IMF).
* In other words, these are short-term loans
that must be repaid at near-market interest.
* Those countries who borrow will have to adopt
measures designed to put their financial houses in
order so as to ensure repayment.
* Commercial banks, both U.S. and others that are major
lenders to developing countries, are being asked to
increase their exposure to developing countries as
part of the overall effort to restructure their
economies without creating undue economic hardship.
-- U.S. participation in the IMF is not really "foreign
aid,"'but part of a joint effort to promote
international financial stability -- something in
which both developed and developing nations have a
stake.
* Developed countries are spared the financial shocks
that might occur through massive defaults on loans.
* Developing countries benefit by being able to pay
their bills, preserve their credit ratings, and
receive help in putting their economic affairs in
order.
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* If major banks benefit, the benefits are incidental
to the achievement of these other objectives.
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INTERNATIONAL SECURITY ASSISTANCE
History.
The United States undertook international security
assistance on a major scale through Lend-Lease and successor
programs before and during its involvement in World War II.
post-war assistance of this kind dates from President
Truman's dispatch of military and economic aid to Greece and
Turkey in 1947 when those countries were threatened with
Soviet aggression.
Since then, security assistance has remained a vital
instrument of American foreign and defense policy. The
security assistance program enables the United States to
sell defense articles and services to friendly governments
to help meet their security needs, to participate in .
regional or collective security agreements, to take part in
United Nations collective peacekeeping efforts, and to
secure access to military bases overseas.
o The Program.
-- Principal components of the international security
assistance program include:
* Foreign Military Sales Credit (FMS), which provides
for the sale of U.S. arms abroad through loans and
guarantees by the U.S. government.
* Economic Support Fund (ESF), which provides low-
interest loans and grants to selected countries of
special political and security interest to the United
States (Egypt and Israel are the major recipients).
* Military Assistance Program (MAP), which makes grants
available to selected foreign nations to assist them
in making purchases under the FMS program.
* International Military Education and Training (IMET)
program, under which foreign military officers are
given U.S. training.
* Peacekeeping operations (PKO), which finances
multinational forces, such as those presently
deployed in the Sinai Desert (as part of the Camp
David accords), and in Cyprus (as part of the United
Nations forces there).
-- Loan guarantees for weapons purchases under FMS
account for roughly half of the total U.S.
international security assistance program.
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Costs.
-- Budget authority for the International Security
Assistance direct assistance program amounted to $0.8
billion in FY 1970, and $2.74 billion in FY 1980 anc. FY
1981.
-- In FY 1981, International Security Assistance
off-budget loan guarantees for totaled $2.5 billion --
a one-hundred-fold increase over FY 1972.
o Administration Action to Date.
-- For FY 1982:
* President Carter requested a total of $5.6 billion:
- $3.4 billion in budget authority.
- $2.2 billion in loan guarantees.
* President Reagan requested a total of $7.3 billion:
- $4.2 billion in budget authority.
- $3.1 billion in loan guarantees.
* Congress approved a total of $7.2 billion:
- $4.1 billion in budget authority.
- $3.1 billion in loan guarantees.
-- For FY 1983:
* President Reagan requested a total of $8.8 billion:
- $4.5 billion in budget authority.
- $4.3 billion in loan guarantees.
* Congress approved a total of $7.8 billion in the
Continuing- Resolution:
- $4.2 billion in budget authority.
- $3.6 billion in loan guarantees.
* By supplemental appropriation, the total requested
was later increased to $8.8 billion:
- $4.6 billion in budget authority.
- $4.2 billion in loan guarantees'.
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- These amounts have not been acted upon yet.
The President's Proposals for FY .984.
o Provide a total of $9.4 billion in total security
assistance for FY 1984, an increase of 6.8% over
last year.
-- Increase direct assistance to $4.7 billion.
-- Increase loan guarantees to $4.7 billion.
Justification.
o Security assistance is necessary to:
-- Protect and preserve U.S. national security.
-- Aid the defense and development of friendly countries.
-- Enhance political and economic evolution of these
countries away from Soviet influence toward more
democratic values.
o The President's security assistance program will
specifically:
-- Promote peace in the Middle East and stability in the
the Persian Gulf.
-- Deter Warsaw Pact aggression in Europe by strengthening
friendly governments in Southern Europe and Southwest
Asia.
-- Complement the President's Caribbean Basin Initiative
_ by assisting the development and security of the
Caribbean', Central,- and South-American countries.
-- Maintain U.S. political and defense commitments and
economic ties to countries in the Far East.
-- Enhance stability in Southern and Central Africa, and
continue to promote development and security in
strategically vital countries in West and East Africa.
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Questions and Answers.
o Misplaced emphasis. At a time when we are being
asked to reduce domestic spending, how can the
Administration justify increasing aid to foreign
countries -- especially when it is for military rather
than humanitarian purposes?
-- The budget request acknowledges the need for fiscal
restraint.
* The Administration is not proposing to increase
international security assistance for every friendly
nation that is presently receiving it.
-- Where increases are proposed, they are to further
critical U.S. interests -- such as to preserve
stability in the Middle East, maintain access to
Persian Gulf oil, and secure U.S. military bases
abroad.
* Major recipient countries under the FY 1984 budget
include: Israel and Egypt (keys to Middle East peace,
with aid being a continuation of commitments made as
part of the Camp David peace process), the nations of
Central America and the Caribbean (a part of the
world through which most U.S. shipping must pass);
Turkey (which hosts vital U.S. bases); Pakistan
(critical to.stability in Southwest Asia); Morocco
(which provides a base essential to the defense of
the Arabian peninsula); and Sudan (under serious
threat of aggression from Libya).
-- Humanitarian assistance is most effective when
conditions within the recipient country are stable.
Military aid must sometimes serve as a complement to
economic aid in order to promote such stability.
o U.S. as arms merchant. Isn't it immoral to request more
money for the U.S. to play arms merchant to the world?
-- Totally eliminating loans and loan guarantees for the
the sale of arms would not stop these sales: not by
the U.S. and certainly not by other nations.
* On a dollar-value basis, the Soviets sell twice as
much as does the U.S.
* Even France sells more arms to the Third World
than does the U.S.
-- Sales in which the U.S. Government offers financial
assistance account for less than 25% of total U.S.
arms sales.
* If this assistance were discontinued, wealthy
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nations would continue to buy arms while poorer
nations -- who often have greater need for them --
could not.
* The world would be less safe, not safer, in such an
unbalanced situation.
-- Friendly countries in the developing world would be
particularly threatened if the U.S. refused to provide
them with arms while the Soviets armed either their
neighbors or insurrectionary forces within their
borders.
o U.S. aid and democracy. Isn't U.S. aid used to suppress
efforts for democratic reform, especially in Latin
America?
-- The U.S. provides support to Latin American governments
to counter, Marxist guerilla elements that seek to
disrupt reformist democratic forces in that region.
-- We must recognize that these economic and political
reforms take time.
-- Nevertheless, with each step in the process, the U.S.
is making every effort to ensure that assistance
enhances the prospects for continued reform.
o El Salvador. Is there any evidence that this policy is
working? What progress, if any, is being made in El
Salvador?
-- Free elections were held in El Salvador in March 1982,
in which more than 85% of the eligible voters went to
the polls. The government elected at that time has
promised to hold further elections this December.
-- The Salvadoran government is carrying out a successful
policy of land reform.
* Half a million previously landless peasants and their
families now own their land, instead of
tenant-farming for large landowners.
* The government is accelerating the program being
engaged in: More than 20,000 new applications for
titles have been filed since October 1982.
* The Salvadoran army has been reinstating farm
families that were illegally evicted by former
landholders. Some 3,700 families have been
reinstated since the March 1982 elections.
-- The Salvadoran authorities have arrested and charged
soldiers suspected of murdering American citizens.
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-- All this has been accomplished during a bitter civil
war in which Communist-backed guerillas have terrorized
the entire countryside.
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History.
The United States has relied on volunteer military
service for most of its history. The draft -- never
popular, and often highly controversial -- was generally
reserved for occasions when the U.S. was actually at war.
The peacetime draft, introduced in 1940, was allowed to
expire in 1947 after the successful conclusion of World War
II. Cold War tensions led to its reinstatement a year
later, and the Korean conflict led Congress to vote
extensions in 1950 and 1951.
Thereafter, the peacetime draft was renewed in 1959,
1963, and 1967. It remained in effect until President Nixon
asked Congress to restore the All-Volunteer Force (AVF) in
1973.
o The Program.
-- Congress authorizes the manpower levels for the Army,
Navy, Marine Corps, and Air Force.
* Benefits, such as financial aid for higher education,
are provided to encourage enlistments.
* Enlistment bonuses are used to encourage higher
quality enlistees to sign up for longer tours of
duty so that they can be given special training for
technical positions; re-enlistment bonuses encourage
individuals with needed skills to remain in the
service.
-- Volunteers are required to pass the basic Armed
Forces Qualification Test (AFQT) to ensure that they
have the requisite intelligence skills for service in
modern military.
o Program changes.
The return to all-volunteer military service
presumed that pay and benefits would be maintained
at levels sufficient to attract and retain qualified
personnel.
-- Unfortunately, pay and benefits did not keep pace with
inflation during the 1970s, with the result that by
the end of the decade, incomes for many service people
had declined to the point where many career-minded
persons could not afford to remain in the service
without forcing their families to make severe
sacrifices.
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-- In FY 1981:
* The President proposed a 14.3% increase in basic
pay and allowances to take effect at the start
of FY 1982.
* The President also supported an 11.7% across-the-
board increase in enlistment and re-enlistment
bonuses to take effect during FY 1981.
* Both proposals were enacted into law by Congress.
-- Recruitment levels and quality of recruits rose
rapidly as a result.
* In FY 1981:
- For the first time since FY 1976, each of
the four services met or exceeded its enlisted
recruiting targets.
- The quality of recruits also rose -- 81% of
recruits for that year had high school diplomas,
as opposed to 68% for FY 1980.
- Even the Army, which has historically had the most
difficult time attracting qualified individuals,
recruited 80% high school graduates.
* In FY 1982:
- Recruitment levels and quality exceeded that
of the prior fiscal year and were in fact the best
since the inception of the AVF in 1973.
- 86% of new recruits had high school diplomas.
- In addition, the number of recruits who scored
average or above on the AFQT increased from 82%
in FY 1981 to 87% in FY 1982.
-- Re-enlistment levels rose correspondingly.
* In FY 1981:
- First-term re-enlistment in FY 1981 climbed to
an all-time high of 43%.
- Re-enlistment among career personnel increased to
77% compared to 71% in FY 1980.
* In FY 1982:
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-- During that same period, Congress reduced the funds
available for re-enlistment bonuses.
* In FY 1972, Congress authorized $300 million for
re-enlistment bonuses.
* By FY 1978, that amount had been cut to about $200
million -- a reduction of one-third. (Greater,
in fact, when the decline in purchasing power caused
by inflation is taken into account.)
* These reductions were not offset by the subsequent,
belated increases to $308 million in FY 1979 and
$390 million in FY 1980.
-- As a result, the armed services found it
increasingly difficult to recruit and retain
qualified personnel.
* By FY 1980, only 54% of new Army recruits had high
school diplomas.
* Many highly-trained technicians, pilots, and other
military careerists were leaving to take
better-paying jobs in the private sector because
they could not provide for their families on their
shrunken service pay.
o Costs.
-- The share of the Defense Department budget devoted
to personnel costs (including retired pay) has
declined every year since 1975 -- from nearly 60%
in FY 1975 to an estimated 46% of planned FY 19
outlays.
* This figure compares favorably with the manpower
costs in labor-intensive industries, which run about
48% of expenditures.
-- FY 1980 outlays for military personnel amounted to
$30.8 billion.
* In constant 1983 dollars, this meant that the U.S.
was spending $44 billion in FY 1980, as compared with
$58.2 billion in FY 1964.
* The decline is partly explained by the fact
that there were about half a million more men and
women in the armed services in 1964 than in 1980.
o Administration Action to Date.
-- President Reagan, a strong supporter of the AVF,
moved quickly to raise military pay and benefits
to more appropriate levels.
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- Re-enlistment among careerists increased to 82%.
-- Outlays for military personnel rose to:
* $36.4 billion in FY 1981.
* $42.3 billion in FY 1982.
-- Salary increases for military personnel were limited
to 4% in FY 1983 by the First Concurrent Resolution
on the Budget.
The President's Proposals for FY 1984.
o Personnel levels.
-- Increase active duty strength by 38,000 in FY 1984 over
FY 1983.
1982
1983
1984
* Army
780,000
780,000
783,000
* Navy
553,000
560,000
572,000
* Marine Corps
193,000
195,000
197,000
* Air Force
583,000
592,000
613,000
- Total
2,109,000
2,127,000
2,165,000
o Military pay.
-- Freeze military pay for FY 1984.
Justification.
o Higher personnel levels.
-- The proposed levels represent a continuation of the
Administration's efforts to bolster combat readiness.
-- Additional forces will permit:
* Manning of new ships, submarines, aircraft, and other
weapon systems that enter the force in 1984.
* Improvements in training, logistics, and intelligence
activities.
* Force modernization in the Army, and Marine Corps.
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o Military pay freeze.
-- A military pay freeze is consistent with
government-wide action being proposed for other pay
raises and automatic cost-of-living increases.
-- Military personnel received major pay increases in FY
1980 and FY 1981 that exceeded federal civilian and
private sector pay raises.
* Pay raises:
FY 1981
FY 1982
FY 1983
FY 1984
- Military
11.7%
14.3%
4.0%
0%
- Federal Civilian
9.1
4.8
4.0
0
- Private Sector
9.1
9.5
9.5
6.5
-- In addition, the more than two-thirds reduction in the
inflation rate over the last two years reduces the need
for a military pay raise in FY 1984.
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Questions and Answers.
o Personnel levels. Why not hold manpower in 1984 to the
1983 level and avoid the cost increases that accompany
higher personnel levels?
-- Almost all of the manpower increases in 1984 are
necessary to support manning of new ships, aircraft,
and other weapons systems and to achieve higher levels
of combat readiness.
-- If strength were held to the 1983 level, there would be
a degradation in readiness in both existing and newly
deployed units.
o Military pay freeze. What impact will the military pay
freeze have on military recruitment and retention?
-- The one-year pay freeze will have only a modest
near-term effect on recruiting and, retention.
* The number of experienced career enlisted personnel
is expected to grow by 5%-10% between 1982 and 1984
even with the freeze.
* 1984 recruit quality should roughly equal that
achieved in 1982, the best recruiting year in the
history of the AVF.
-- The budget includes a contingency fund for additional
pay and benefit increases beyond 1984 if such measures
are necessary to ensure that critical manpower
requirements are met.
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History.
The United States emerged from World War II as the only
nation possessing nuclear weapons. At that time, our
government solemnly pledged that we would use this awesome
power not for purposes of conquest or coercion, but for
deterring attacks on ourselves and on our allies.
Every succeeding American government has renewed this
pledge. Unfortunately, not every nation that has-since
developed nuclear capability shares our commitment. In
today's world, the prospect of an unprovoked nuclear attack
or nuclear blackmail by a hostile state is very real. This
country's strategic forces must be strong enough to meet
this challenge if nuclear war -- or the threat of it --is to
be avoided.'
o The Program.
-- U.S. strategic forces are based on what is commonly
referred to as the "Triad," which consists of:
* Land-based intercontinental ballistic missiles
(ICBMs).
* Submarine-launched ballistic missiles (SLBMs).
-- The other components of the program-include:
* Warning, surveillance, and communications systems
that alert us in the event a nuclear strike is
launched.
* Interceptor aircraft to counter manned bombers.
* Research and development, essential to securing
needed technological advances in strategic systems.
o Costs.
-- Strategic forces (exclusive of research and
development), averaged 10.3% of the total defense
budget between 1962 and 1981.
* In 1962, the share was 21.9%.
* In 1965, the share was 12.5%.
* In 1970, the share was 9.1%.
* In 1975, the share was 8.2%.
* In 1979, the share was 6.7% -- the twenty-year low
point.
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-- The share can be expected to fluctuate for the obvious
reason that it is costs less money to maintain a
system than to replace an obsolete system with a new
one.
* Weapons, like any other mechanical devices, have
effective life spans.
* They wear out, become obsolete, or otherwise have
to be replaced.
-- This is the case with the systems of the strategic
Triad, many of which are twenty years old or older.
-- For the future, the U.S. will have to pay more to
modernize the three legs of the Triad.
o Administration Action to Date.
-- Despite higher requests at the end of the Carter
Administration, spending on strategic forces was still
not high enough to compensate for the neglect of
earlier years.
-- Furthermore, President Carter had delayed modernizing
the manned bomber leg of the Triad by cancelling
production of the new B-1 bomber.
-- Accordingly, on October 2, 1981, President Reagan
announced a comprehensive program to modernize U.S.
strategic defense forces.
-- The President's program consists of five elements:
* Deployment of the new, larger, and more accurate MX
("Peacekeeper") missiles, to upgrade the land-based
leg of the Triad.
* Development and deployment of a new SLBM (which
will be more accurate and carry a bigger payload
than exisiting missiles), and the early deployment
of cruise missiles on attack submarines.
* Deployment of a new bomber (the B-1B) to
replace the aging B-52, and the development of
an advanced technology (Stealth) bomber for the
1990s.
* Improvements in warning and communications systems,
including improvements in radar and satellites that
warn of nuclear attacks.
L
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* Improvements in strategic defenses, including air
defense interceptors, development of an
anti-satellite system, and increases in civil
defense programs.
-- For FY 1982:
* President Carter requested $15 billion for strategic
forces.
* President Reagan requested $17.4 billion.
* Congress approved $15.3 billion.
-- For FY 1983:
* President Reagan requested $23.1 billion.
* Congress approved $20.6 billion.
* The difference between the two figures largely
reflects Congressional denial of funding for the
"closely spaced basing" method of deploying the
Peacekeeper missile.
The President's Proposals for FY 1984.
o The President's FY 1984 budget includes $28.2 billion
for the continued modernization of strategic forces, a
$7.6 billion increase over 1983.
o Provisions include:
-- Modernization of ICBM forces with the Peacekeeper
missile. Specifically:
* Continued development and flight testing of the
missile.
* Procurement of 27 missiles.
* Construction of technical facilities.
Submarine-launched missile programs.
* Continued production and deployment of the
Trident submarine and Trident I missile.
* Development of the new Trident II missile,
with improved accuracy, range, and payload.
-- Manned bombers.
* Continued production of the B-lB bomber and
development of the Advanced Technology Bomber.
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* The President's Commission on Strategic Forces.
In response to Congressional concerns, the
President appointed a bipartisan commission to
review U.S. strategic modernization options.
The Commission recently recommended continuation of
the President's strategic initiatives, including
proceeding with procurement of the Peacekeeper
missile.
- The Commission, however, recommended basing 100 of
these missiles in existing Minuteman silos and
pursuing research and development on a possible
small, single warhead missile, superhardening of
missile silos, and ballistic missile defense.
Justification.
o The Soviet threat:
-- The Soviet drive for nuclear superiority and
their deployment of more effective forces threatens
the nuclear balance and has weakened U.S. retaliatory
capabilities by:
* Increasing the vulnerability of U.S. ICBMs.
The Soviets have not only installed multiple
warheads on their missiles, but have greatly
improved their accuracy, thus bettering their
chances of eliminating U.S. land-based missiles
in a first strike.
* Decreasing the penetration capability of U.S.
bombers.
- Modernized Soviet air defenses have reduced the
effectiveness of the B-52 bomber.
* Threatening the survivability of U.S. command,
control, and warning systems.
-- Elements of the Soviet advantage.
* The Soviet Union now has:
- More ICBMs than the U.S. (1,398 vs. 1,049).
- More SLBMs than the U.S. (950 vs. 544).
* The U.S. lead in warheads is narrowing.
- The Soviets are also expected to begin deployment
of a new bomber.
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-- U.S. defense forces need to be modernized to meet
this threat.
* For instance, many of our strategic weapons are older
than the crews that man them.
- The last B-52 bomber was built in 1962 -- the same
year the Minuteman and Titan II ICBMs were
deployed.
- The new Trident submarine -- the first of which was
launched last year -- is our first completely new
strategic system in twenty years.
* These problems will only grow worse if left
uncorrected.
o The Reagan Administration's response.
-- The Admnistration's strategic program will reverse the
unfavorable trends in the strategic balance favoring
the Soviet Union, and counter recent Soviet advances in
missiles, submarines, and bombers.
o Defense and arms control.
-- The modernization program provides an indispensible
foundation for progress in the Strategic Arms Reduction
Talks START and other arms control efforts by
enabling the U.S. to negotiate from a position of
strength.
-- Only in such a situation will the Soviets have any
incentive to negotiate in good faith.
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Questions and Answers.
o Spending on nuclear weapons. Can the U.S. afford an
unprecedented spending program on nuclear weapons?
We must be able to afford to pay whatever is necessary
to protect national security.
Nonetheless the President's strategic spending program
is not unprecedented.
* Exclusive of research and development, the President
is proposing to devote 10.3% of the defense budget to
strategic forces in FY 1984.
* This is the same share of the budget devoted, on
average, to strategic forces over the period 1962 to
1981.
o Arms control. Won't progress in arms control negotiations
result in savings in the strategic budget?
-- The Administration is attempting to negotiate equitable
and verifiable reductions in nuclear armaments.
-- Negotiations toward this end may or may not succeed;
much depends on how. willing the Soviets are to engage
in meaningful arms negotiations.
No matter how successful arms control negotiations may
be, however, we still need to modernize our aging
strategic systems.
o M-X Basing. Won't the Peacekeeper missile be vulnerable
to Soviet attack if it is deployed in existing silos?
-- The vulnerability of any single element of the
strategic Triad of missiles, bombers, and
missile-firing submarines is not the key factor in
preserving U.S. deterrence credibility.
-- The modernization of the entire Triad, in association
with survivability improvements yet to follow, will
ensure U.S. deterrence capabilities into the future.
o Is the B-1 an Edsel? Won't the B-1 bomber be obsolete by
the time it is deployed? Shouldn't we go straight to the
"Stealth" bomber?
-- There are three reasons why we should proceed with the
B-1B:
* The current manned bomber leg of our Triad, the
B-52, is aging and needs modernization now.
* The B-lB is in production right now.
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* The B-lB will be able to penetrate Soviet defenses
into the 1990s.
.-- If we are to maintain our strategic Triad, we need the
B-lB.
o Soviet response. Won't an increase in U.S. spending?,on
nuclear weapons provoke the Soviets to do the same?
-- During the. last decade, the Soviet Union embarked on
the greatest nuclear arms build-up in history without
any provocation whatsoever from the U.S..
* U.S. spending on nuclear arms declined during that
period in real terms.
* The U.S. vigorously pursued detente and friendlier
relations with the Soviet Union.
-- Far from accelerating the arms race, a demonstration
that we are willing to pay what it costs to defend
ourselves would convince the Soviets that they have
nothirig..to gain by trying to achieve nuclear
superiority over the. U.S.
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