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In order to estimate payment in tiers it is necessary to place all lowrent housing pupils in the B category even though we are certain that some qualify as A students because we believe that some uniformed service personnel and some employees who work on Federal property reside in low-rent housing, although this causes an inaccuracy in the table.

Showing estimates of entitlement it may be necessary to retain all low-rent housing pupils in the B category for both entitlement and payment purposes in order to monitor the funds.

Another complication is the tracking of the funds which will occur with the handicapped child of a uniformed services parent residing in low-rent housing or the handicapped child of a uniformed services parent residing on Indian lands.

The table reflects rough estimates especially of pupils in-county, out-of-county, out-of-State. We hope to refine some of the estimates soon by using newly created property certification automated system, perhaps as early as late March or April.

Amendments creating new subcategory A and B pupils present major administrative problems, especially with regard to our present automated payment system.

For example, while formerly two computations were necessary to compute entitlements for the A and B category children, now at least 21 separate computations must be made. This large number is essential in order to treat the subcategories differently, in the second or third payment tiers, identify amounts for low rent and handicapped pupils and determine amounts for use of the various hold-harmless provisions.

Formerly there was only one additional computation. That was for proration following the entitlement computation. Now there will be four, one for each of the tier payments and the total.

Moreover the present computer form which details the computation of entitlement, prorated entitlement and payment, and which is sent to the applicant along with his check, to Congress for notification and to the States undoubtedly will be expanded from one to two pages. The computer can, of course, accomplish these computations without difficulty once it has been programed and tested for accuracy.

But this total process which includes the collection and verification of data, the processing of applications will make it difficult to pay local educational agencies on a timely basis.

Mr. BELL. Mr. Chairman, I will conclude my testimony. Then we will be ready for questions.

I will skip over that part of the testimony that Mr. Stormer just covered.

So, if you are following my written testimony, I am at the top of page 8.

There are four new hold-harmless provisions which guarantee minimum payment of 80 percent or in certain cases 90 percent where the Public Law 874 payment was greater than 10 percent of the previous year's current expenses and which will guarantee minimum payment of 90 percent of previous year's entitlement to school districts losing 10 percent or more federally connected children during fiscal year 1974 and fiscal year 1975 due to decrease or cessation of Federal activities affecting military installations announced after April 16, 1973.

They will also guarantee minimum payment of 90 percent of previous year's payment for B children if the number of out-of-county and out-of-State B children is at least 10 percent of total B children and will guarantee the difference between payment received from an appropriation shared with low-rent housing pupils and the payment that would have been received if the appropriation were not so shared. The first two of these provisions are applicable in fiscal year 1975. All of these provisions present problems. If the first hold-harmless was "designed to reduce the impact of changes in entitlements," as the conference report states, then it should not become effective until 1976 when the major changes occur.

Since it is scheduled to become operative in 1975 one might conclude that it was also designed as insurance against low levels of funding for A and B children.

For example an applicant who recevied a special payment in 1974 for a substantial decrease in federally connected children would be unlikely to remain eligible for another such payment in 1975.

In this case it is possible that the 1975 payment will be less than 80 or 90 percent of the 1974 payment.

Then such an applicant would benefit from the provision.

If the intention was to fund all such applications for several years on this special basis they could easily have been included in the second hold-harmless clause which presently relates only to military decreases and which can be funded from the regular appropriation. The first hold-harmless must be funded separately from the regular appropriation.

The requirement that estimates for two of the hold-harmless provisions be furnished within 15 days of a regular appropriation is unreasonable. It is impossible to predict the numerous changes in entitlements and then apply all of the hold-harmless provisions to each changed entitlement and to other hold-harmless provisions before all applications are initially processed.

Since final reports are not due until September 30 and cannot be fully processed until the end of the next fiscal year it is more reasonable to request estimates for the hold-harmless provisions at the end of the fist fiscal year following the fiscal year of entitlement.

Or estimates for about three-fourths of the school districts could be ready by the end of January following the close of the fiscal year. However such action does not permit making funds available to an LEA, if required, in the year of application.

In addition to the administrative problems discussed above I think it would be useful to reiterate this administration's concern with the inequities in the impact aid program.

The following items are based upon the findings of the Battelle Memorial Institute Study of 5 years ago but unfortunately these conditions remain essentially unchanged and would be only slightly modified by the new provisions of Public Law 93-380.

In general, current impact aid pavments result in unjustified payments to many school districts and thus constitute an inequitable use of Federal funds.

The major sources of impact aid "windfalls" which still prevail are: Payments that far exceed the costs of the local government of educating Federal pupils.

Payments to districts that, even without the Federal assistance, are wealthy and well able to support their own schools from local sources with a lower tax effort than most districts in the State.

Payments based on nontaxability of Federal property where activity on that property generates taxes sufficient to defray the education costs of children of persons working on the property.

Double payments to districts that receive funds through in lieu of taxes payments or shared revenues and again through impact aid. Double payments to the districts that receive funds from their State government on an equalization formula.

Higher per pupil payments to rich districts than the poor ones resulting from the methods used to calculate the rate of payment. Payments based upon children who would likely be attending schools there even if the Federal Government had never come into the district. Payments that do not reflect the economic stimulus that the Federal Government may cause in a community.

As a result of such overpayments, districts with a large percentage of federally connected students are characterized by lower pupilteacher ratios, higher per pupil expenditures and lower tax rates than districts with less Federal impact or no impact at all.

Theoretically there should be some reduction in the payments to the wealthier districts, particularly in the Washington, D.C. area, as a result of new provisions giving no payment to out-of-State B pupils. But the operation of the variety of "hold-harmless" provisions including one directed specifically at that situation push any real reduction far into the future.

Facing this kind of inequity in a program which has continued to grow in appropriations, the administration proposes to simplify impact aid and focus its benefits on only those districts which can truly be said to suffer a Federal impact.

Our proposal would continue the pattern adopted in appropriations for the last several years of giving higher priority to A pupils by creating an eligibility based on a 100-percent payment for heavy impact A districts and 90 percent for other A's.

B pupils would be paid at 68 percent and B out-of-State pupils would not qualify, thus reducing payments to wealthy school districts.. No payments would be made for public housing pupils.

Moreover, to make certain that we make payments only where there is a substantial impact, we propose to deduct 5 percent of the district's previous year's current operating expenditures from its total eligibility and pay only the difference.

About 900 districts presently receive more than 5 percent of such expenses from Public Law 874 funds and thus would be eligible for pavment in 1976.

Of the current districts receiving impact aid approximately 2.400 receive less than 2 percent of their total operating funds from that


In a period when Federal dollars are at a premium we believe that this program is a logical candidate to provide savings which are now necessary. But even without the fiscal constraint we feel the program must be brought in check.

In conclusion, Mr. Chairman, we believe that the new provisions of Public Law 874 which take effect in fiscal year 1976 are extremely difficult to administer.

We would also note that as a result of the handicapped and public housing provisions the Federal Government for the first time has a mandate to check on the utilization of impact aid funds at the local level. This eliminates one of the major advantages of these funds in the eyes of school administrators, their general purpose use.

We suspect these may be the first steps in the direction of a full categorical program which moves far away from the bill's original


We believe that this program has now reached a critical point in terms of administrative complexity, inequities in application and lack of clarity of purpose.

Only a major revision of the program will suffice. We urge that you consider our proposal and proceed to develop a new law which will eliminate, or at least reduce, the legislative-executive battles which have prevailed in this area for the past quarter century.

I would like to say, Mr. Chairman, in reference to the Senator from New Mexico's point, that our current thinking also would exclude debt service so that matter that he brought up would not be a matter of debate if our current thinking is implemented.

Thank you, Mr. Chairman. My colleagues and I will be happy to answer questions.

Chairman PERKINS. Let me thank you, Mr. Commissioner, and the gentlemen from the Department who accompanied you here this morning.

In my judgment your proposed cutback won't get very far this Congress. That is just my personal knowledge.

We deliberately postponed the new ground that we plowed, the amendments, to make sure that we knew where we were going for fiscal 1976 for 1 year before they went into effect.

Are you in a position to give us a printout on the effect of those amendments that we enacted last year within the next couple of weeks or so for the record?

Mr. BELL. Mr. Stormer, would you

Chariman PERKINS. That would affect the present ongoing districts throughout the country? Give us a printout, a complete printout on that.

Mr. BELL. Mr. Stormer, could you respond to that?

Chairman PERKINS. You can do that?

Mr. BELL. Yes, we will be able to do that.

Chairman PERKINS. That will be very helpful to the committee. Your new proposal, Mr. Commissioner, is to cut out any impact payments which amout to less than 5 percent of the school district's budget.

This means, doesn't it, that aid to 3,500 of the 4,300 school districts receiving impact aid would be eliminated?

Am I correct?

Mr. BELL. Yes.

Chairman PERKINS. If that is correct, as you say it is. maybe you could send us some ideas on how to correct some of the problems in the present law.

I am very confident that your proposal will not stand up in this committee, and will not stand up in the House and the Senate, or anywhere else.

If you have other suggestions along that line we will be delighted to receive them from you.

It seems from your testimony that the cost of the new amendments to this second level of funding will be $750 million without any funds for the hold-harmless provisions.

Is that correct?

Mr. BELL. Approximately $608 million, Mr. Chairman.

Chairman PERKINS. If so, as you admit, did you use the latest available data to arrive at that cost?

Mr. BELL. Yes, we did. We used the best that we have. We would still be operating on estimates. But of course the program has a long history. So we think the estimates are fairly good.

Chairman PERKINS. Will the costs be higher when you receive later data or less?

Mr. BELL. Would you comment on that, Mr. Stormer?

Mr. STORMER. I would think the costs would be approximately the same, slightly higher.

Chairman PERKINS. Could you tell us, give us your best estimate of the cost of the hold-harmless provisions?

Mr. STORMER. I am not prepared to give that figure at the present time.

Chairman PERKINS. Will you get that for the record? Supply it for the record?

I notice in your budget estimate--I have your sheet before me here— for fiscal 1975 the allowance was the same as the $636,016,000 and for 1974 it was $593,416,000.

Am I correct in those figures?

Mr. BELL. The latter figure I believe we have $574,416,000, if I am following you. That is after a 5-percent reduction, Mr. Chairman. Chairman PERKINS. I know there is some injustice in this program which we first authorized in 1949 and again in 1958, but I have witnessed over a period of years the tremendous good it has done throughout the country.

We have all these problems now of inadequacy of funding of all school programs at the local levels, and the Government, in my judgment, is just not in a position to drag the rug out from under these local education districts.

Some are wealthier than others and may be able to withstand the absorption. But to do so would not, in my judgment, hold up in the Congress.

I think that we need the most constructive suggestions that we can get from your Department because I do not anticipate the Congress, or this committee, being in a mood to cut back this program in view of the conditions of the local schools throughout the whole country.

You have proposed to spend only about $200 million, if I read you correctly, for the next year in the area of impact aid. Am I correct? Mr. BELL. Approximately $256 million, Mr. Chairman.

Chairman PERKINS. I am sure you would agree with me that that proposal is a dead duck.

Mr. BELL. As far as its possibilities are concerned. I might point out, Mr. Chairman, for the record that there are 1.246 districts that get less than 1 percent of their total current expenditures out of impact aid.

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