24 percent in such expenditures when they are taken as a proportion of the Nation's total output.

Or to put it another way, this doubling of public educational expenditures would absorb 10 percent of the 10-year increase in GNP at a 3-percent rate of growth, but only 5 percent of the increase at a 5-percent rate of growth.

Mr. HELLER. Note that in 1957 dollars-that is, in constant pricesour gross national product is rising from $316 billion in 1948 to $440 billion in 1957, and, at a 3-percent growth rate, would reach $592 billion roughly in 1967; at a 4-percent growth rate, roughly $652 billion. If we were to achieve the 5-percent growth rate posited by the Rockefeller group, it would be a $717 billion gross national product.

You might be interested in the figures for 1958, 1959 and, prospectively, 1960 as they relate to the $440 billion in 1957. In 1958 the gross national product dropped back under the impact of the recession to $437 billion. The official U.S. Treasury estimate, as a basis for its revenue calculations, is $473 billion for 1959, this current year. It is being assumed that we will pass the $500 billion mark in gross national product during 1960.

That is a factor of considerable importance. It suggests that we are likely to achieve in the next few years the 4-percent growth rate rather than the 3 percent, and that very probably our gross national product will be in the neighborhood of $650 billion or so in 1967.

If this were to be the case, for example, if we had a $500 billion gross national product in 1960, Federal revenues would rise from the estimated $77 billion in the President's budget to about $83 billion.

Without tax-rate increases there is every prospect that the Federal tax system will generate very substantially increased revenues, making possible the financing of an educational program without raising tax

rates.

Mr. FRELINGHUYSEN. But does not that projected growth also mean, quite logically, that you might anticipate an increase in the amount that would be spent at levels other than the Federal?

Mr. HELLER. Yes, but when you look at $15 billion for education rising to somewhere in the neighborhood of $30 billion, if we are to have the standards of adequacy that this age calls for in education, it means that you need to make more efforts at all levels of government. Mr. FRELINGHUYSEN. I agree again. But would you not think that the Federal effort might be geared to the necessity or the advisability of encouraging further local and State effort, and certainly not to set up a program that might discourage such an increase in effort?

Mr. HELLER. I will address myself just a little later to the types of pressures the State and local governments find themselves under. That may, in a sense, be an answer to the question you are raising.

Mr. FRELINGHUYSEN. I take it your answer is negative, broadly speaking.

Mr. HELLER. My answer is that State and local governments should make greater efforts to finance education than we have today. Later in the statement I point out areas where it seems to me they could raise more money, and should. But it also seems to me there is a direct Federal responsibility for contributing to the financing of public education, and that the capacity of State and local governments is not unlimited. It is a very different type of capacity. Therefore, a broad Federal program of the type of the Murray-Metcalf bill is required.

But perhaps you will want to question that specifically when I make those more specific points.

I think we have made the main points with respect to the projections of GNP and educational costs, showing the capacity of the economy to finance education.

These figures bear out the impression that the Nation has ample economic resources to support almost any educational effort it may wish to undertake. In fact, it is safe to say that the limits to our public support of education lie less in our pocketbooks than in our hearts and minds. This Nation has a full enough pocketbook to finance any educational program it sets its mind to and its heart on.

But the economist cannot stop here and consider his job finished. He also has a task of translating national economic capacity into specific terms of fiscal responsibility and fiscal capacity. This requires, first, consideration of the role education plays in carrying out the implicit and explicit responsibilities of the Federal Government and, second, an examination of the fiscal capacity that each level of government can draw on to finance its share of the educational function. Federal responsibility for support of public elementary and secondary education.

Given the compelling need for expansion of our educational efforts and the evident economic capacity to meet this need, what factors shape the role of the Federal Government as a participant in the financing of pubic schools?

First and foremost, education is an essential instrument for carrying out functions which are a direct Federal responsibility. Education is an investment in human resources from which we expect to reap positive gains in the form of higher productivity, more rapid advancement in technology, a better informed and better implemented foreign policy, and a stronger Military Establishment and greater military potential. Here, the benefits of education transcend all State and local lines. They involve our national economic strength, prestige, and security, even our national survival.

For the Federal Government to assume part of the cost of public education to serve these ends is no act of largesse or charity to State and local governments. It is simply the best available method of discharging certain national obligations. As in the case of aids for land-grant colleges, no part of the educational function would be centralized, yet national objectives would be served by Federal contributions to the financing of local school systems.

It is worth noting that this point is quite independent of the adequacy or inadequacy of State-local fiscal capacity and taxing efforts to support education. This point says simply that there is a strong national interest in better schooling to serve objectives that the Federal Government has been charged with both by the Constitution and by legislation, such as the Employment Act of 1946.

Perhaps some would argue that the Federal Government should step in only if the State and local governments do not have the necessary taxable capacity to do the job, a question which is examined below. But the answer to this is quite plain. State and local governments should not be forced to the limit of their fiscal capacities to carry out, without Federal support, functions in which there is a strong Federal interest. If they are forced to do so in the field of

education, other State and local functions will be deprived of their rightful share of State-local revenues and resources.

Mr. FRELINGHUYSEN. If I might interrupt again, Mr. Chairman. That statement about

State and local governments should not be forced to the limit of their fiscal capacities to carry out, without Federal support, functions in which there is a strong Federal interest.

Suppose there was Federal support. Should they be forced to utilize their fiscal capacity?

Mr. HELLER. It seems to me that the trend of the times, the force of events, is going to force them to the virtual limits of their fiscal capacities within the next decade.

Mr. FRELINGHUYSEN. Well, in many areas they are already forced. Mr. HELLER. That is right.

Mr. FRELINGHUYSEN. And there has not been any hue and cry that there is something wrong in being forced to the limit of their fiscal capacity.

The definition of fiscal capacity in itself varies so much that in some cases it may be a hardship, and in some cases it may not.

Mr. HELLER. But perhaps this sentence doesn't make quite clear what I was driving at, namely, that the States should not be forced to push themselves to the limit for financing functions which are an instrument for carrying out Federal policies, because that means that they will have to starve or undernourish other functions.

Mr. FRELINGHUYSEN. For heaven's sake, why not? At the moment they certainly are performing functions that are associated with the national interest in educating our children. You are not saying they are wrong in doing that?

Mr. HELLER. No, indeed. But under the present circumstances, when we see education as an investment in greater military security and in economic growth, and if there is this strong, supervening national interest in promoting these national objectives through the States and local public school system

Mr. FRELINGHUYSEN. I am not arguing with you that there may be a Federal role which includes financing where the national interest is involved. I am saying that it is not necessarily wrong for the States and communities to be utilizing their full fiscal capacity without such a program. I am also asking whether, if there is Federal support, it would not be appropriate for the States and local communities to utilize their fiscal capacity.

Mr. HELLER. It seems to me that we are having a little difficulty with the semantics of this thing.

I thoroughly agree that the State and local governments should use their full fiscal capacity.

Mr. FRELINGHUYSEN. I am glad to hear that. That is one of the questions I was asking.

Mr. HELLER. Yes. And I feel, as you have suggested, that many of the States are at or near their limits of fiscal capacity.

But I would argue that if they have to use their full fiscal capacity to support education, for example, they may be depriving other functions of the support that they should have, other functions that are more purely local in nature.

Mr. FRELINGHUYSEN. We all face the necessity, whether it is privately or publicly, of making a choice between various ways in which we can spend money, of course.

Mr. THOMPSON. Are you not suggesting, in a sense, that the definition of the limit of their fiscal capacity is, in almost each instance, an individual thing? They have street, sewerage, police, fire protection, and things like that?

I understood from this that you meant that the cost of education to the municipalities is so heavy that it is almost disproportionate, and that in order to fulfill their local obligations, which we all agree should be done, if they were to, with the increasing costs, they would have to devote entirely too much of their revenues from ad valorem taxes, for instance, and that other things quite necessarily might have to suffer. Is that what your approach is?

Mr. HELLER. You have put it much better than I have. And it is precisely the point I was trying to make.

I point out in the next paragraph, for example, that we should consider the relative Federal contributions to the support of highways, health, welfare, and other State-local functions. That is covered in table 2. And I ask whether there is really a difference in kind or even in degree between the Federal Government's responsibility in the area of education where it finances only 4 percent of total Statelocal costs, and the responsibility in such other areas as highways where it finances 12 percent, and public welfare where it finances 46 percent?

Mr. FRELINGHUYSEN. Dr. Heller, in asking that question, would you mind giving an indication of what your view is as to an answer?

Mr. HELLER. My view is that the Federal Government has considerably more responsibility in the area of education than a 4-percent participation would imply.

Mr. FRELINGHUYSEN. Your question would seem to imply also that the Federal Government might finance up to 46 percent of the educational costs of the country without changing the picture very radically or perhaps without any reason for us to hesitate about recommending such a course. Is that correct?

Mr. HELLER. No, not necessarily.

(Table 2 follows:)

TABLE 2.-Percent of selected State-local expenditures financed by Federal aid, State revenues, and local revenues in fiscal year 1957

7

1 The National Defense Education Act of 1958 may slightly increase the Federal share beginning with fiscal year 1959.

21957 figures do not show the full effect of the increased Federal support of highways.

3 Includes such activities as police, local fire protection, sanitation, and local parks and recreation which are financed largely from local revenue sources, and all other activities.

Source: U.S. Department of Commerce, Bureau of the Census. "Summary of Governmental Finance 1957." Series G-GF-57, pp. 27-28.

Mr. HELLER. Table 2, for example, shows that the Federal Government, on the average, for the functions covered there, finances 9 percent. I am not saying that either 9 percent or 46 percent is the correct figure. I do not think we know just offhand what is the exactly correct figure. But 4 percent, just on the face of it, seems unduly small relative to the importance of education in serving national objectives. That is all I was trying to underscore.

Mr. FRELINGHUYSEN. But you are not saying that there may not be a difference in kind or in degree between the amount that the Federal Government puts up in the field of education and the amount that it puts up in the area of public welfare?

Mr. HELLER. I would thoroughly agree with you that, with respect to any specific function, one might very well find a sharp difference. But in looking at the relationships here between, let us say, 4 and 46 percent, it does not seem like a balanced relationship in terms of the national interest.

Mr. FRELINGHUYSEN. Do you think today, Dr. Heller, the Nation's schools are controlled by their school boards?

Mr. HELLER. That is a question I find very hard to answer. I think, by and large, there is local control and initiative and responsibility, and national school boards have a very important role in this.

Mr. FRELINGHUYSEN. Do you think that they are in control, broadly speaking?

The reason I ask and perhaps it is an unfair question-is that the bill H.R. 22 says that they are not in control. The specific language is they are "dictated by the harsh demands of privation." And it is for that reason that the Federal Government has an obligation to step in and share in this financing.

Mr. HELLER. This statement is not meant to suggest, as I understand it, that any other group, as it were, is exercising control, but just that, because of inadequate financial support, the school boards are not able to carry out the policies in some cases that they would like to.