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deal with one inequity, we might replace it with something that is even more grossly unfair in equity.

You could not justify a program that identifies a particular type of child as a burden to a school system and entitled to Federal consideration and then contend that because large numbers of them are in a particular district they are no longer a problem in that district.

It is particularly difficult, of course, to deal with when you realize that the way the formula is the big cities have already been discriminated against in distribution because the level of payment to them is based on averages which they tend to lead.

I heard from you something a few moments ago that startled me when you suggested that the high-expenditure districts were outside the urban areas. That is just not the case at all.

I think we will find that the cost of education has gone up faster in the big cities and they tend to lead in cost increases.

I am not talking about whether that in turn produces any better quality. But the cost has nevertheless been there and every year that that happens—the way this formula and other formulas unfortunately work—that city as a part of that state continues to be the victim of a degree of unfairness.

I am not asking you to try to justify the 5 percent. I think the chairman has already indicated to you that you shouldn't be very optimistic that Congress is going to buy it.

I am suggesting that if we are going to clean up this formula we ought to get off of that and put that over here as one of the least likely things that Congress would be willing to do and find out how we can effect a formula more fair.

Mr. BELL. I certainly accept that, Mr. Ford. We will work as closely with you and your staff as we can on this.

I really feel that we have a big challenge to look at the equity and inequity matter in the impact aid. I think that we can still improve on the program notwithstanding the immediate past amendments that have been made.

We will be most glad to do that and to do the staff work and to run the data and do what other things that your staff needs us to do in that regard.

We will attempt to be responsive to a serious study to look at the inequities, the matters you have talked about: the big-city schools I am aware of. I know that is where our great educational problems are these days.

So, to summarize, we will be most happy to work with you. We are not on any obsession, where all we want to talk about or work on is the administration proposals.

We have the other responsibility, which is to provide assistance and work with this committee as you desire.

Mr. Ford. Thank you, Mr. Commissioner.

Now, unfortunately, at the time there was a long drawnout conference we were trying to assess the impact of changes that were being worked back and forth and compromises that were arrived at piece by piece.

We were working with something less than perfect data. We had a couple of people over at the Library of Congress working all night long to try to get out of the computers what they could.

us.

The Office of Education, unfortunately, was not very cooperative at this stage and gave us practically no help at all in trying to determine what would happen.

Ever since then I know personally that the members of the committee like Mrs. Mink and Mr. Meeds have been asking the school superintendents across the country to examine this thing and tell

As the chairman pointed out we deliberately set off the effectiveness for at least 1 year so we would have a chance to see what was going to happen.

I understand that your people now have been working on figures. The administrators have been working on figures. Our staff has been trying to corrolate them.

We discovered that the administrators have done a very thorough job of surveying, by categories and piece by piece, just about every district in the country that has been receiving impact aid.

You have your estimates based on the information that is in your computer. But, unfortunately, we have a disparity of several hundred million dollars in figures because your people are working on 1974 figures and they are working on 1975. We are going to hear from those people.

But I wonder if we couldn't engage in the idea of having the staff on both sides of the aisle here on the committee together with vour staff and the so-called experts from the administrators get their heads together after we finish here today so that, in a short time, using both of you and having some agreement on what data is relevant, we could make comparisons for 1974 and 1975.

Whatever happens I don't believe you will get Congress to move one way or the other on this unless they have some idea what this is we are talking about.

Mr. BELL. We will be happy to do that and look forward to doing so.
Mr. FORD. Mr. Quie?
Mr. QUIE. Yo questions.
Mr. FORD. Mr. Meeds? I didn't see you.
Mr. Meds. Thank you, Mr. Chairman.

Mr. Commissioner, please excuse me for running from committee to committee. Unfortunately many important things are happening this morning, including your own testimony here on the subject matter which a number of us are interested in.

I would be interested to discuss the utilization formula with you. I was here when you testified to the effect that your current thinking excludes debt service as local resources.

Mr. BELL. That is right, sir.

Mr. Meeds. Would you be kind enough to indicate to me the rationale for that?

Mr. BELL. Yes. We feel that Public Law 874 is for the current expense support of educating children and that 815 is the capital outlay part of the program.

We have also checked with various Committee staff members in trying to determine what was legislative intent.

It was our information, Mr. Meeds, that this was the intent of Congress, that we do that.

Mr. MEEDS. Who gave you that? If I can interrupt, who gave you that information ?

Mr. Bell. I would ask Mr. Alford. He was involved in contacting various persons.

Mr. ALFORD. Mr. Meeds, I dont' think-you know, we can't identify any particular individual. We had a number of discussions with stafi. Staff differ on this. So the intent of Congress is not that clear.

The judgment we drew from this is that it was better to stick with the current expenditure concept.

Mr. MEEDS. You are aware, are you not, that I was the person who proposed the amendment?

Mr. ALFORD. Your amendment?

Mr. MEEDS. On equalization. That is what we are talking about, isn't it?

Mr. Alford. Well, yes.

Mr. MEEDS. Did you ever check with me or my staff on what our intent was?

Mr. ALFORD. Mrs. Wright has been in on meetings that we held. I think we have received your views.

Mr. MEEDS. Did you ever hear me or any of my staff indicate that we didn't want to see debt service included as a local resource?

Mr. Alford. No; I can't say we did.

Mr. MEEDS. I am sure you didn't. Because it is my feeling and you may dissuade me, if you can-that debt service ought to be counted.

If we were providing funds under Public Law 815 and schools were actually being built under Public Law 815 I might tend to agree with you. But we all know they are not.

Let me give you the perfect example of what I mean. Oak Harbor, Wash., a heavily impacted area in my own district, built a high school recently. A great share of the funding from that came from a special levy at the local level. Some money was provided by the State of Washington. None of the funds were provided by Public Law 815. That school district is 33-percent A impacted and probably 80-percent A and B impacted.

I see no reason in the world why those people ought not to be able to count as a local resource the funds which they by special levy raised for that high school.

Can you give me any good rationale why they shouldn't be able to?

Mr. ALFORD. I don't know, Mr. Meeds, if we can. This is a very serious problem, as you understand. But you can get opposite illustrations which will skew the equalization another way. I think we would not say that it is wrong to include debt service. We are not arguing that at all because you can make a case for it.

I think what we were using is simply our best judgment at least at this point.

By the way, the Commissioner has indicated that we have not locked this into concrete. We are still discussing it. But this is what our best judgment has been that it would be better to exclude debt service.

There is no clarity in this whole area as far as congressional intent was concerned. I dont' think there was anything in writing in the committee reports or in the colloquies on the floor.

So what we have had to do is sort of explore the whole situation as best we can.

We are trying to come up with an effort at equalization which we can administer which would seem to be the intent of the law.

I think all we can say is at this point it is our best judgment that it is better not to include the debt service.

But this doesn't mean that it is wrong, that you can't make a case for it.

Mr. MEEDS. Can you make a case against it?

Mr. ALFORD. I don't know just off the top of my head. I haven't been working as much with this as some of the others.

Mr. MEEDS. Is there someone who has been?
Mr. ALFORD. Anybody ready to-

Mr. MEEDS. I will be glad to listen to anybody make a case against it.

Mr. ALFORD. I have one illustration.

Mr. BELL. This is Mr. Sky, who is General Counsel for the Office of Education.

Mr. Sky. Congressman, I would say that we have looked at the legislative history in determining what was to be included in terms of local revenues. It talks about “total local revenues.” We couldn't find anything specific in the legislative history that went one way or the other with respect to the question of whether you include debi service or capital outlay for total local revenues.

The argument has been made—and quite strongly by certain Statesand indeed it was made here this morning--that Public Law 874 is a current expenditures program. It is an M. & 0. program.

So one could draw the conclusion that when Congress used the words "expenditures," "revenues," in the context of Public Law 874, which is an M. & 0. program, that they were talking about current expenditures. That seemed to be some of the thinking we got this morning.

There is not anything that clear cut in the legislative history.
Mr. Ford. Will the gentleman yield to me!
Mr. MEEDS. Yes.

Mr. Ford. The problem is you are stating two things at one time. You are saying that you looked at the law and found that we said you should take into account total local revenues and then you turn around and say that what you are really going to count is total local expenditures because the distinction you are making is not how the money is collected or how much it is but whether it is spent for debt service or something else.

What Mr. Meeds and I had in mind when we were negotiating the settlement on this matter was that the local effort to collect taxes should be taken into account. It was revenue from local sources we were talking about, without regard to how it was spent.

There was no equalization formula that I am aware of in any State that makes a distinction on expenditures when it determines that equalization is for the purpose of equalizing revenue. It is revenue they are trying to equalize.

I can understand how there might be at the office in SAFA a mind set about Public Law 815 and its construction and Public Law 874 and its operation.

But out in the States, and particularly in the Midwest, you will find that the bulk of local revenue is expended in fact for capital improvements and the bulk of administrative costs and operating costs come from State sources.

So you are going to say to the local units of government in these States that the principal use to which they put locally collected taxes cannot be credited to them. We didn't mean expenditures. We meant revenues.

Jr. Meeds. The gentleman has put his finger precisely on the issue when we, as he puts it, negotiated this.

Let me say at the outset that I am not surprised the States are in here testifying that it ought not to be counted. Obviously they would be testifying that it ought not to be counted because it would allow them to deduct more in their equalization formulas. So I am not surprised at all about that.

But it was not our intent in negotiating this in any way to jeopardize people at the local level when they were making efforts to raise funds at the local level. What you are doing if you

do not allow them to include as a local resource funds raised for capital expenditures is in effect punishing them.

So the record is clear on this issue. I as the author of this legislation expect that funds raised for expenditures at the local level be counted as a local resource in calculating and in fact writing this equalization formula.

I guess that is about as clear as I can put it. Mr. QUIE. Would the gentleman yield? Mr. Meeds. Yes; I would be happy to yield to the gentleman from Minnesota.

Mr. QUIE. The thing that strikes me in this whole conversation is that if the other States handle local expenses like they are in Minnesota, the debt service is separate on a local budgeting item and current expenditures are separate.

As you have indicated, when the State deals with equalization it deals with equalization on a current expenditure basis rather than having the debt service involved.

If you bring the debt service into this whole question of equalization and whether this money should be included or not, it makes a difference in what kind of a building local school districts put up. Whether a school district has gold-plated banisters or not doesn't seem to me to make any difference in the quality of education for the child.

If vou go to equalize all your expenditures, even the cost of the building, then I think we are going way beyond what we anticipated.

What we are trying to do here is encourage in each State that every child be given an equal opportunity with equal expenditures, at least upto a State level.

But if vou go into using debt service then I think this throws it off. I think there could be an argument made, Lloyd, why we wo

vould not want to include the debt service expenses.

Mr. BELL. Mr. Quie, a fast-growing district will have a lot of debt service expenditures because they have a lot of buildings planned. A district that is declining in enrollment, one which is quite stable, won't.

I don't know a formula that can mix the two in any experience I have had on the State and local level.

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