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Mr. STAFSETH. Yes. I would be very glad to speak to this.

In the State of Michigan we had a situation where we accumulated about $60 million in our State funds which was basically ready to go on interstate and Federal projects. The embarrassment of the process was that our State legislature would say if you got $60 million why do you need more money, but we had no idea when the Federal funds were going to be made available.

I think your point and questions are very well put. When the cutbacks are made almost instantaneously without warning, and we have no idea when they will be released again, it is a very difficult proposition in a large State to plan the finances. We have some cases where some States even have gotten to where they are borrowing money and can be harmed by such a proposition.

Senator CHILES. So the Federal Government tells you when you pass a law, what you must do to comply with a program and what kind of funds you must put in, and we do that when we pass the law and then another part of the Federal Government holds back funds and leaves you hanging when you try to comply with the law!

Mr. STAFSETH. That is right, and it makes it very difficult because of the balances you hold in the State it is hard for the State legislature to look upon this and understand the problem. So it compounds itself.

I would like to point out one other difficulty with the highway director of Michigan. I had a situation where a veteran from the Korean war had a house which laid within the right-of-way of an interstate highway project that has been held up for many reasons, including the lack of funds, and he pleaded with me if we would hurry up and buy his property, build a highway so he could sell his home and move 80 miles closer to his job. The minute that we designate a highway right-of-way and it is held up for any reason it causes personal hardship on many people because it is hard to get rid of their property.

I know through the Federal highway administration we have developed some systems to better relieve these hardship cases, but that has been only in the last 2 or 3 years. So I guess that has been corrected partially. But the financial bind has not been corrected.

Senator CHILES. Senator.

Senator Ervin. As I understand, the funds that were used for highway construction were passed, derived from taxes, imposed upon a special group of taxpayers and not upon taxpayers at large, namely, upon taxpayers who use the highways?

Mr. AIRIS. Yes, sir.

Senator Ervin. They are collected under the law, they are put in a trust fund, and the law prescribes they cannot be spent for any purpose other than the construction and repair of highways?

Mr. AIRIS. Yes, sir.

Mr. STAFSETH. I would like to mention the concept of the trust fund is the point I would like to make. Our funds are different than some of the other general fund programs. These were taxes collected to do a certain job just like you pay for your own electricity. The industry and highway departments were committed to carry out a program

and without having dependable funds it makes it difficult.

Senator ERVIN. I am sorry Senator Percy left because I have very different opinions on some subjects from those of his.

If you take the highway funds to build mass transit systems, then the next step you will take them to subsidize airlines, and then the next thing you will probably be taking them to maintain the Army and Navy, or to establish a home for blind cats or something like that. I think it is a gross injustice to impose taxes for use of the highway and then take these taxes and use them for some other purpose. If you want money to build mass transit systems, let them levy taxes on all the people and not on a selected group. In my mind taking highway funds for that purpose is about as fair and just and logical as taxing-meaning nothing personally—taxing badheaded men and giving

benefits to the redheaded men. That is my analysis of the situation. I know a great many Members of the Senate disagree with me, but that is my very abiding convictions.

Senator CHILES. Senator Muskie.

Senator MUSKIE. Senator Ervin entertained some of my convictions as to which I am willing to abide with him.

I think the Senator raised a very interesting point in the light of one of the guidelines the President gave us yesterday as to his view of the constitutional right of the President to impound the funds, and this is what he said:

Constitutional right of the President of the United States to impound funds, and that is not to spend money when the spending of money would mean either increasing prices or increasing taxes for all people. That right is absolutely clear.

Now with respect to the second criteria that he stated, increasing taxes, the case of the highway trust fund, it is sustained by its own taxes; is it not?

Mr. Airis. Yes, indeed.

Senator MUSKIE. And those taxes are earmarked for highway trust funds still. It is earmarked for that purpose, is it not?

Mr. AIRIS. Yes, indeed.

Senator MUSKIE. Would the full funding of the program, as authorized by the Congress have resulted in spending in excess of the revenues accruing to the highway trust fund?

Mr. Aipis. Well, I don't have those figures, Senator, with us here. I think I would have to leave it with the general statement that the trust fund was established to fund the highway program, that is 100 percent, that is with the State matching funds and that was it.

Now, of course, in any program you get deficits and small surpluses. But it was established for a particular purpose.

Senator MUSKIE. But the trust fund is in the black, is it not?
Mr. Airis. It is at the present time.

Senator MUSKIE. If it were not placed in the red by the full funding of the program that has now been held up, would it? That is my very strong impression.

Mr. Arris. Well, I pointed out the needs for a program to cut down accidents, to finish up the Interstate, and just answering you generally, I think there would be no surplus in the funds, if that is what you are driving at.

Senator MUSKIE. You are talking about down the road. I am talking about this year in which the highway funds have been impounded. If it is not this year, the full implementation of the program as Congress authorized, would have been to put the fund in the red ?

Mr. AIRIs. Maybe so, maybe so. I don't have those figures. But certainly it would have been used up if it had not been the money in the fund, that is if their cutbacks had not taken place.

Senator MUSKIE. Money would have been drawn from the fund but the fund would not have been left in deficit; would it?

Mr. STAFSETH. I am informed back in the middle 1950's when there was no impoundments, there were times

Senator MUSKIE. I am talking about the effect of this specific act. The President says that under the Constitution he can withhold spending and the effect of the spending would be to require an increase in taxes. Now, it is my view as a member of the Public Works Committee and as a member of the Subcommittee on Roads of the Public Works Committee that the highway trust fund is solvent, that it would have been solvent had this program been implemented, and I am rather astonished that you should now be suggesting to me that that isn't the case. Perhaps we haven't been given full information in the Public Works Committee.

Mr. STAFSETH. The fund apparently is solvent. There is no question about that.

Senator MUSKIE. This year's program, if these funds would have been solvent ?

Mr. AIRIS. What, sir?
Senator MUSKIE. Solvent.
Mr. Arris. If they had not been impounded ?

Senator MUSKIE. Yes, at the end of this year. I am not talking about unmet needs 3 or 4 years down the road. I am talking about this year's allocation.

Mr. AIRIS. Well, I think I would have to just answer it in general words that it probably would have been solvent, but it would not have the money in it that that is now if the cutbacks had not taken place.

Senator MUSKIE. My definition if you spend money you have to guard it. I am talking about the net result at the end of the year.

The President says the effect of spending money is to increase taxes. In the case of the highway trust fund those taxes can be spent for only one purpose and that is the building of highways and other incidentally related purposes the Congress has authorized. So if you don't spend it for highways, you don't spend it for schools, not yet, or homes for blind cats, not yet, or any of those purposes, only for highways. So if the President's argument is that his constitutional right of impoundment exists by holding up spending you can save taxes, you can focus your spending on highway taxes. If, by completely implementing the program the Congress authorized, if in the course of the year the fund is made insolvent or operating on a deficit basis and you don't think you can under the law, but if it were, then maybe the President at least has got the facts to sustain his argument, whether or not his argument is legally sound.

What I am trying to get at, and I guess maybe I can do it with Mr. Ash, if he knows anything about the highway trust fund, get at it that way.

But my point is on the base of information that we have been given in the Public Works Committee, and I had hoped that you had it, that the highway trust fund has had it, it is implementing the fund, it would not require an increase in taxes and not be left in the black and so that reason for impounding does not exist with respect to the highway trust fund. That is my view. I had hoped to get the basic kinds of facts from you to sustain the argument.

Well, I can get it elsewhere.

Senator Ervin. The theory on which the highway funds were established is that to make an estimate of how much revenue would be for use by the highway taxes and for a certain period in the future, for a year, and then that that money would be used for no purpose except roads.

Mr. AIRIS. That is as I understand it.

Senator Ervin. And nowadays where there are deficits, where the estimate falls short, it is a self-supporting fund and operates on a pay-as-you-go basis substantially?

Mr. AIRIS. Yes, sir.

Senator ERVIN. My information is that the executive branch has impounded $5.7 billion of highway funds, which have been collected, and refuses to spend them, or

permit them to be spent. Mr. STAFSETH. Well, the surpluses in the fund varies through the year, and I think the time that your figures were probably taken is correct. I think now it is closer to about $2 billion. It is down a little bit lower. But that has been up higher than what you stated and now it is lower.

Mr. Arris. That is as I understand it.

Senator Ervin. Since several years ago the executive branch of the Government abandoned the two-budget system, that is, one budget for operative funds and another budget for trust funds, and adopted what they called the unified budget by which it may pretend that the deficit, the operating deficit to run the money that they borrow by deficit financing and spend, is less than the amount that is actually spent. Isn't it out of operating expenses !

Mr. AIRIS. If I follow you, Senator-I think I do affirmative.

Senator Ervin. In other words, if you refuse to spend $2 billion you have in the highway fund, and you add the receipts for the operating expenses and receipts for the trust funds and then add the expenditures from the operating funds and the trust funds, it would appear that the Government has failed to spend the amount that has been impounded.

Mr. Airis. Well, I think I understand what you are driving at, and as I said, I think our position would be affirmative. Now, I should probably add this: That the operating and maintenance funds come out-of-State funds. None of it comes out of Federal.

Senator Ervix. I am not talking about operation of funds. I am talking about the expenses used and the funds used and the deficits used to operate the Federal Government. So when you have a surplus in the highway funds and a deficit in the operating funds of Government and you put them both in the same pot, it looks like your deficit of operating funds is less by the amount of trust funds that you impound, which is some bookkeeping legerdemain.

I think we can agree that the question of whether highway funds can be used for other purposes is a legislative and not executive matter.

Senator MUSKIE. I differ with you on that.
Senator CHILEs. We thank you very much for your testimony here.

Our next witness will be Mr. Roy Ash, the Director-designate of the Office of Management and Budget.

Senator ERVIN. I would just like to announce that the committee has extended an invitation to the Secretary of Agriculture, and the administration called EPA, and the committee has been assured by the executive branch of the Government that if at all possible, without canceling other engagements that day, Mr. Butz and Mr. Ruckleshaus will appear before the committee on Wednesday of next week, and if not then, then some other day.

Senator CHILEs. The committee is delighted to receive that information.

Mr. Ash, we appreciate your taking your time to appear before us today.

STATEMENT OF ROY L. ASH,“ DIRECTOR-DESIGNATE, OFFICE OF

MANAGEMENT AND BUDGET, EXECUTIVE OFFICE OF THE PRESI. DENT; ACCOMPANIED BY SAMUEL M. COHN, ASSISTANT DIRECTOR, OMB; AND JAMES BRADLEY, ACTING GENERAL COUNSEL, OMB

Mr. Ash. I would first like to introduce those that I have with me here.

Mr. Sam Cohn, Assistant Director, Office of Management and Budget and Mr. Bradley to my right, who is Acting General Counsel of the Office of Management and Budget.

I can't think of a more appropriate subject or a more appropriate committee to appear before as my first opportunity to testify on behalf of the Office of Management and Budget. I hope there will be many more such opportunities.

Senator CHILES. Thank you, sir.

Mr. Ash. Mr. Chairman, members of the committee, your letters, one of January 17 and one of January 24, requested that Director Weinberger or I appear before this committee and comment on the subject of impounding or reserving appropriated funds, and I am, of course, very pleased to do so.

Before going directly into that specific subject, let me say that much of the present difficulty results from the lack of a congressional mechanism to review and act upon the overall government fiscal situation in advance of taking appropriation and other legislative action, such as authorizations to obligate the Government in advance of appropriations.. We know that the Congress itself recognizes this deficiency, and last October established, by Public Law 92–599, a joint committee to review the procedures which it should adopt to improve congressional control of the budgetary totals, including a coordinated overall view of each year's budgetary outlays and anticipated revenues. As you may know, the President has pledged the full cooperation of the administration in working with that committee. We repeat this offer of cooperation now.

The need for such a mechanism was pointed out by the President in the budget message that was sent to the Congress earlier this week. He said:

Because of modifications made to reflect the desires of more than 300 congressional committees and subcommittees that influence it, the (budget) process has become more complicated and less comprehensible.

The fragmented nature of congressional action results in a still more serious problem. Rarely does the Congress concern itself with the budget totals or with the effect of its individual actions on those totals. Appropriations are enacted in

1 See also Mr. Ash's statement on Wednesday, Feb. 7, 1973, p. 481.

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