percent. It thus appears that State and local governments can manage the long-term financing of needed school construction at considerably less cost to the taxpayer than the Federal Government could.

About 623,000 classrooms have been built since the end of World War II. By fall 1959, half of all public-school children will be housed in plants completed within the preceding 14 years. Never have America's children-or the children of any other country-been housed so well. The school plant will be of more recent date and in much better shape than the residential plant. This is a record of which States and communities, and the American people as a whole can be truly proud.

This review of the classroom situation may well be concluded with a look at Russian schools. Comparisons with Russian education have been very much in the public eye, particularly since the Commissioner of Education last year reported that he found no teacher shortages in the Soviet Union and that its schools enjoyed ample funds.

The official Soviet Government magazine U.S.S.R.-usually not given to understatement-reported in October 1958, that the Government had, between 1946 and 1955, built 29,555 schools to accommodate 5 million children. By 1960, it asserted, another 4 million children will be studying in newly built schools.

Our American school systems, between 1946 and 1955, built 350,000 classrooms to accommodate about 10 million children. Private schools built classrooms for another 12 to 2 million. Between 1956 and 1960 about as many classrooms will be built in the United States as were built from 1946 to 1955.

It appears then that we in the United States have built new school facilities for more than twice as many children as did the Russians. The population of the Soviet Union is about 10 percent larger than ours, and their schools suffered severe damage during the war and were not to be compared to ours prior to World War II. It is small wonder then that, according to a report in the New York Times magazine of November 2, 1958, and several other reports, Moscow schools are on double shift, that typical elementary classes number 40 to 45 pupils, that classrooms are much smaller than ours, and that, in general, buildings are poorly constructed and look to Americans more like warehouses. If quality of education depends on the newness, spaciousness, elaborateness of the facilities, then we have nothing to fear from the Russian competition.

4. STATE AND LOCAL FISCAL CAPACITY

In the preceding sections, we have disproved some of the exaggerations in regard to vast and growing material deficiencies in the public schools and have refuted the charge that education is being discriminated against in the allocation of the national income. One major point remains to be dealt with which is being mentioned, time and again, in support of Federal aid: the State-local fiscal capacity to maintain good schools.

The Murray-Metcalf bill states in section 2:

“*** The financial resources available to many communities are inadequate to support construction programs sufficient to eliminate classroom shortages, and practically all communities face the problem of providing compensation to teachers commensurate with the salaries received by persons with comparable education, experience, and responsibilities. These inadequacies are seriously restricting the quality of the Nation's educational program * * *.

"However, the Congress recognizes that without sufficient financial resources at their disposal to provide necessary educational facilities and to employ competent teaching personnel, the control of our Nation's schools is not directed by State and local school boards but is dictated by the harsh demands of privation. Without the means to pay for alternatives, school boards have no freedom of choice."

Less than 2 years ago, a well-known economist studied State-local capacity and reported:

"Whether State and local governments have sufficient resources to meet their burgeoning responsibilities is partly a question of underlying economic potential and partly a matter of adjusting State, local, and Federal tax systems to convert this potential into adequate State and local revenues.

"Underlying economic capacity depends, first, on the size and growth of our national economy and, second, on the size of the Federal Government's slice of the economic pie. Here, the perspective for the years ahead is decidedly reassuring. Today's $33 to $35 billion of State and local revenues represent roughly

8 percent of our $430 billion gross national product, as against the prewar level of about 9 percent (in 1940, when GNP was $100 billion). Adding in $82 billion of Federal cash receipts brings total Government receipts to nearly 28 percent of GNP today. One way of looking at the State-local tax potential is to apply this same percentage to the projected GNP of $550 billion in 1965 and then subtract the likely claims of the Federal Government. (Actually, existing taxes would yield more than 28 percent of the enlarged GNP because of heavy reliance on income taxes.)

"What does this computation suggest? Simply this: that if Federal cash spending increases by no more than $1.5 billion each year between now and 1965 (bringing us from the current level of $78 billion to a 1965 level of $90 billion or less), we can afford reductions in Federal tax rates equal to or greater than the required increases in State-local tax rates. Out of total revenues of over $150 billion, State and local units would be getting about $60 billion while the National Government would be getting about $90 billion. But simple arithmetic is not synonymous with simple solutions. Note that this "60-90" solution requires

"(1) That we maintain a briskly expanding, fully employed, noninflationary economy.

"(2) That the President and Congress exercise enough fiscal forbearance to devote part of the revenue bounty of economic growth to tax reductions rather than expenditure increases.

"(3) That the Federal Government put its fiscal relationships with State and local governments on a sound basis of constructive cooperation, e.g., (a) that it structure its tax reductions so as to facilitate the expansion of State and local revenues; (b) that it adjust its monetary and debt policies to relieve the States and localities of undue economic pressures and restrictions both in booms and in slumps; (c) that it strengthen administrative ties between Federal and State-local tax enforcement agencies.

"(4) That citizens will rise to the occasion by accepting responsibility, i.e., by taxing themselves more heavily and intelligently, at the State and local level rather than running, hat in hand, to the Federal Government" (State Government, July 1957).

This study suggests that the Federal Government receive 60 percent of all tax collections and State-local governments 40 percent. Presently the Federal Government takes 72 percent of all taxes. It is proposed then that the responsibili

ties of the Federal Government be trimmed and those of State and local governments expanded.

The report continues:

"Timely Federal tax cuts not only help restore the economy to its path of full employment and growth (as the 1954-55 experience so dramatically demonstrated), but also make room for strengthening the taxes of State and local governments, which must live by the balanced budget rule both in prosperity and depression."

The report indicates that State-local governments can do the job:

66* * * Do State-local governments have the necessary tax tools to do their $60 billion share of the job, and are they prepared to use them? It is often suggested that they lack the tools or that the available ones are already stretched to the limit. Without denying that it is difficult or impossible to translate $1 billion of Federal tax cuts into $1 billion of State-local increases, one can readily cite facts which suggest that the limits on State-local tax capabilities have been overstated. Several States have demonstrated the potential of particular taxes. Three States of widely differing characteristics-New York, Wisconsin, and Oregon-draw nearly half of their State taxes from the income tax, although the 48 States as a whole draw only about one-sixth of their taxes from this source. Similar comparisons could be made for the sales tax with States like Ohio and Illinois and Washington leading the pack. Or one can approach the problem qualitatively and show that there are substantial possibilities of broadening the bases of existing taxes, e.g., in the case of the income tax, by tightening up deductions, perhaps lowering exemptions and raising the starting rates; or, in the case of the sales tax, by including expenditures for various services which are now tax free.

"When speaking of unexploited State and local tax potential, it is worth reminding ourselves (without any necessary policy implications) that only 31 States have a personal income tax, only 32 have a sales tax, and only 19 have both. Also, we may note that State cigarette taxes range from 2 cents to 8 cents

per pack, and beer taxes from 50 cents to $13 per barrel. There must be some untapped capacity here."

The above-quoted report was prepared by Dr. Walter W. Heller of the University of Minnesota in 1957. In April 1958 and in February 1959 Dr. Heller presented the case for Federal aid to education before the Subcommittee on Education of the Senate Committee on Labor and Public Welfare.

"*** some States already find themselves near the end of their fiscal rope, and many, if not most others, will be hard-pressed to raise the revenues needed to close the gap between expanding State-local services and the natural growth in State-local revenue. The demonstrated pressures on, and limitations of, State-local tax sources itensify the need for Federal support. Exclusive reliance on State and local taxation to do the (school) job simply means that it will not be done. Unless a program of Federal support is adopted, the National Government will, in effect, be asking the States and localities to assume educational costs which (a) they should not be asked to assume because they are spent in furtherance of the Federal Government's programs and responsibilities, and (b) they cannot be asked to assume in full because of limitations on their taxable capacity."

Quotations from this debate between Dr. Heller and himself about the taxable capacity of State and local governments could be continued.30 He presented both viewpoints exceedingly well. In all fairness, it should be mentioned that in the earlier report Dr. Heller was talking to State and local government officials, in the later, to a committee of Congress. Further, that in his later statement he was appearing as an economic consultant to, and on behalf of, the National Education Association.

The NEA has long contended that State and local governments are unable to finance the schools. In a recent pamphlet, "Can America Afford Better Schools," it suggests that school funds be at least doubled within 10 years, and states that, under the present tax system, this will mean increases in real estate taxes by 50 to 90 percent, in sales taxes from 2 to 4 percent, in income tax rates from 21⁄2 to 5 percent, etc. Then it asks, "Can the States and communities carry this heavier tax load?" The alternative it presents is Federal aid. But no reference is made to the additional taxes required to produce the Federal aid.

The research director of the NEA, Sam M. Lambert, presented the case in the December 1958 issue of the NEA Journal:

"Can local and State governments continue to carry 96 percent of the total cost? The answer is, they can't.

"If the State and local governments have to bear the entire burden of the inevitable increases, many will be forced to raise taxes. Such an increase in the tax load would be more than many State and local governments could stand. *** Sooner or later, taxpayers are going to look for relief to the Federal Government which collects three in four of our tax dollars."

This suggests that the alternative to higher taxes is Federal aid. It leaves unanswered the question where the funds for Federal aid are to come from. The implication is obvious: Federal money comes for free: it does not cost anybody anything.

It is only too true that the taxpayers are looking for relief to the Federal Government-for relief from both exhorbitant Federal taxes and from deficits which may devalue their dollars. Both exert a repressive influence on our economy, tend to paralyze enterprise, devour savings and venture capital, and act as a powerful brake upon the natural growth and expansion of our national product and income. How can taxpayers obtain such relief if more and more vast new spending schemes are proposed and adopted? To present the alternative as one of local tax boosts on one side or Federal aid on the other is grossly misleading, to say the least. The Federal budget this year is running the highest peacetime deficit in history.

It is self-evident that there are no resources, no wealth or income in the United States which are not located in the States and subject to their taxing, powers. There is no magic in the Federal Treasury aside from its ability to contract debts of astronomic proportions. The alleged "vastly superior taxi

30 Dr. Walter Heller, "Financing State-Local Government in State Government (monthly magazine of the Council of Stat and Dr. Heller, "The Changed Setting of State-Local Financ zine of the Municipal Finance Officers Associatoion), Ar Heller before the General Education Subcommittee of the and Labor. Apr. 29. 1958, and before the Subcommittee Labor and Public Welfare, Feb. 5, 1959.

power of the Federal Government" has been inadequate to meet expenditures in 5 out of every 6 years over the past 3 decades.

The effect of Federal aid would be to shift the power to direct educational policy increasingly from the people in the communities, the parents and taxpayers to the professional bureaucracy. This is not only contrary to our traditional American system, it is not conducive to improvement in the quality of education. Federal aid to education is not being asked by those constitutionally responsible for the schools: the States and the boards of education. The National School Boards Association, for some years, has refused to support Federal aid. State Governors have, at their annual conferences, considered but never supported such legislation. In fact, the Joint Federal-State Action Committee of Governors and Federal Officials has twice recommended, in the last few years, that existing Federal programs in the field of vocational education be returned to the States.

In addition, permanent Federal aid to education would probably turn out to be extremely wasteful. Too often specific Federal grants take the form of numerous categorical and earmarked programs, each with its own statutes, rules, and bureucracy. The Federal standards and procedures established as the result of administrative compromise do not necessarily fit any single local or State situation across this vast and diverse land. This is no argument against specifying how Federal funds should be spent, but it is a forceful argument against an approach which may prove to be most wasteful-and thereby reduce the amount and quality of education we obtain for a given commitment of resources.

The contention that the States need help in the marketing of bonds is without substance. New State and municipal bonds are presently being placed at an average 3.4 percent interest rate and some States are selling theirs at or below 3 percent. The Treasury finds it difficult to raise money at 4 percent and is presently forced to sell its bonds at a discount.

In many cases State and local governments could increase their financial capacities by modernizing and modifying debt limitations and prohibitions. Furthermore, they could explore the possibility of investing greater amounts of public pension and other trust funds in State and municipal bonds rather than in securities of the U.S. Treasury. The magnitude of this resource now being utilized in a few States-is indicated by the fact that State and local governments invested $11.6 billion in Federal securities between 1945 and 1958.

These and other figures throughout this paper are national totals or averages which do not always necessarily depict the situation in a particular State or community. But, of course, national totals are the sum of the several States; averages express the typical situation. They are more representative of the true situation than individual stories which may be rare or unusual and may have been selected to prove a case which otherwise could not be substantiated.

It may-and has been-argued that some States are economically well off but that others do not have sufficient resources and need Federal aid. Sometimes it is asserted that low-income States exert a greater effort for their schools than high-income States. The case for equalization is of questionable validity-for several reasons:

(a) The difference or range in per capita income among States shrank substantially and dropped from about 1: 5 a quarter century ago to less than 1:3 in recent years;

(b) The number of children has been increasing rapidly in high-income States and little, if any, in low-income States. Fifty-eight percent of the national increase in school enrollment between 1955 and 1970 is projected to take place in the 12 wealthiest States, only 5 percent in the 12 States at the bottom of the income scale.

A recent report of the Bureau of the Census (p. 25, No. 194) showed substantial gains in the number of children under 5 between 1950 and 1957 in the highincome States and losses in such States as Arkansas, Mississippi, Alabama, West Virginia, Kentucky, etc.

(c) The wealthier States may be spending a smaller percentage of their personal income on public schools because a larger percentage of their children attend private schools. Spending for public schools only is not an adequate measure of the people's educational effort.

(d) There is little difference in the State and local tax effort between highincome and low-income States. Also, the former pay a much larger percentage of their income in Federal taxes.

(e) State and local debt as related to personal income is somewhat higher in the high-income States than in the low-income States. Many of the latter have a considerable unused debt potential.

The Committee on Federal Responsibility in the Field of Education of the Commission on Intergovernmental Relations conducted the most thorough study of school finance and fiscal capacity in many years. It reported:

"We have not been able to find a State which cannot afford to make more money available to its schools or which is economically unable to support an adequate school system.

"The American people have built up, over the last century and a half, the greatest school system in the world under State and local responsibility. The public educational system has shown tremendous and consistent progress and proven flexible enough to meet new and greater challenges. We believe that it will continue to so do. * * *

"Schools have been a State and local responsibility by longstanding and firmly embedded tradition. They should so remain. * * * The general conclusion is that Federal aid is not necessary either for current operating expenses for public schools or for capital expenditures for new school facilities. Local communities and States are able to supply both in accordance with the will of their citizens."

A recent telegraphic survey of State chamber of commerce activities in the field of education indicates that business leaders are encouraging State and local support for expenditures to build and operate schools. A summary of that survey is attached as appendix A.

To summarize, legislation like the Murray-Metcalf bills assumes

(1) That a thorough and objective study and analysis of school conditions has been made;

(2) That this analysis reveals critical, emerging conditions with which the States and their communities cannot cope because of lack of resources; (3) That the Federal Government has resources not available to the States which should be used to correct the identified weaknesses in State school systems;

(4) That the Federal Government can validly discriminate and should intervene in financing solutions to identified problems in education, without controlling or taking responsibility for the outcomes of such assistance. All of these assumptions, we submit, are untenable, if not contrary to fact. Studies of the supply and utilization of teachers indicate that an increasing and adequate number of our college youth has been and is being prepared to teach, but that inefficient organization or administration of schools combined with low certification standards do not require or utilize available college graduates; and that further the single salary schedules now dominating most school systems have discouraged the continuation in the profession of the more able teachers, especially men.

The one national survey of classroom conditions undertaken by the Office of Education has only resulted in incomplete and noncomparable returns from the States, the latter reports varying greatly in reliability as to method or conclusions reached. These reports tend to confirm, however, the conclusion that higher income States have had and will have the greatest classroom needs and that further Federal taxation in these States to redistribute moneys to low-income States, as proposed in S. 2, would but compound the problem.

There is no evidence, however, that any State and its communities cannot support good schools, even though some are not utilizing their resources as fully or efficiently as others. The Murray-Metcalf bills would actually weaken motivation for greater efficiency in those States most needing it, through its redistribution of revenues from other States. Real improvements in the quality of education would thus be delayed rather than promoted, especially in the light of the local and State apathy often encouraged when increasing amounts of "free" money from Washington are known to be in the offing.

We conclude then with the contention that grant-in-aid legislation like the Murray-Metcalf proposal is not only unnecessary, but might slow down local and State action upon which needed improvements in the quality of education actually depend.

The national chamber will continue to urge business leadership and cooperation in such State and local action to build and maintain good school systems. We are convinced that this is the only means by which people in those communities, and States can have the schools which they believe proper for their children.