Every study completed since 1972 of the fiscal impacts of Revenue Sharing indicates that, for these reasons, data complied from the use reports do not provide an accurate picture of the actual impacts of the Program on State-local spending and revenues.

This is in no sense to suggest that the concern of the Congress about the effects of Revenue Sharing on State and local budgets, and its concern that the funds be handled responsibly and accountably, are misplaced. The concerns are entirely proper, and they can be responded to.

The Congress addressed the responsibility issue directly when it amended the State and Local Fiscal Assistance Act in 1976 to require every jurisdiction receiving more than $25,000 per year in Revenue Sharing to submit the results of an audit of all of its financial records. This requirement was imposed in full recognition of the reality that an "audit" of general fiscal assistance makes sense only if all of a jurisdiction's records are audited, for the very reason of the fungibility of such assistance. Only such a general audit can provide the essential assurance that Revenue Sharing funds are handled responsibly and in accordance with applicable State and local--as well as Federal-laws.

The required use reports do not provide accurate answers regarding the effects, or benefits, of Revenue Sharing. Only fiscalimpact studies, of which many have been completed since the Program was enacted in 1972, can provide this information. The general conclusions of these studies are, first, that the fiscal impacts of Revenue Sharing vary widely from jurisdiction to jurisdiction. Second, the impacts have shifted substantially since the early years of the Program. In the first few years, the major fiscal impacts tended to be increases in outlays for capital projects and other, one-time types of outlays or temporary tax cuts. This reflected the concern of recipients to avoid building into their operating budgets a source of revenue that could be temporary.

As the years passed, and the outlook for continuing receipts from the Program appeared to be more secure, an increasing proportion of the funds has been allocated to basic operating budgets. As this trend has continued, it is clear that the fiscal impacts of Revenue Sharing have come more and more to reflect the functional allocations of the overall budgets of State and local governments.

The impacts of Revenue Sharing in other words, are increasingly the same as the impacts of State and local governments' own revenues. This is, as noted earlier, precisely the underlying intent of general fiscal assistance.

ORS STAFF SIZE

Question: With the elimination of the State share, your funding has decreased by several billion dollars, yet you intend to maintain a staff of approximately the same size (156 vs. 157), with such a reduction, do you really need a staff of that size?

Answer: The staffing requirements of the Office of Revenue Sharing are directly related to the total number of recipients receiving Revenue Sharing funds rather than to the dollar amounts distributed. Consequently, elimination of payments to State

governments, though substantial, would have no significant effect on the salaries and expenditures for the Office. The 50 States represent a very small fraction of the more than 39,000 units of government for whom data factors must still be verified, allocations computed, payments distributed, and compliance monitored.

Also, the experience of many smaller governments with the Federal Government is limited and causes many problems which have to be addressed and which require technical assistance. The administrative functions associated with the 50 States are negligible by comparison.

ORS DISCRIMINATION COMPLAINTS

Question: In your justification, you note that discrimination complaints have increased. Would you elaborate and explain how you handle such complaints?

Answer: Civil rights discrimination complaints have increased at an accelerating rate in the past few years, as shown in the following table.

Complaints are reviewed upon receipt for ORS jurisdiction and entered into the computer tracking system. They are assigned to investigators as workload allows and both the complainant and the jurisdiction are notified. The investigator does preliminary research to determine if a visit to the jurisdiction is necessary. Written interrogatories frequently are used to gather factual evidence. A site visit is made in most cases in order to interview the parties personally and/or view physical conditions in a services-discrimination case. After the evidence is analyzed, a prefinding letter is sent by the Civil Rights Manager to the jurisdiction with proposed remedies if discrimination has been found. The bulk of the cases are settled at this stage with a compliance agreement. If a resolution is not reached, a finding letter is sent by the Director. Again the jurisdiction is requested to respond with voluntary compliance. If compliance is not achieved, a determination letter is issued, and Revenue Sharing funds are held unless there is a request for an administrative hearing. If a hearing is necessary, an administrative law judge ultimately decides on the merits of the case. To date, only fewer than a dozen cases have reached the point of an administrative hearing. If discrimination is found, Revenue Sharing funds are held until compliance is secured.

OFFICE OF NEW YORK CITY FINANCE

STATEMENT OF JOHN J. MCLAUGHLIN, DIRECTOR

ACCOMPANIED BY:

CHARLES V. MCFADDEN, DEPUTY ASSISTANT DIRECTOR (FINANCIAL MANAGEMENT DIVISION)

ROBERT W. RAFUSE, DEPUTY ASSISTANT SECRETARY (STATE AND LOCAL FINANCE)

OPENING COMMENT

Senator GARN. Now if we could shift to the New York City loan guarantee program.

The city's audited budget for fiscal year 1980 showed a $356 million deficit, $66 million below fiscal year 1979. You predict that in fiscal year 1981 the budget will be truly balanced for the first time in over a decade.

With that brief opening statement, would you like to proceed? Then I will have some questions for you.

Mr. MCLAUGHLIN. Senator, my name is John McLaughlin. I'm the Director of the Office of New York Finance. Mr. Rafuse, whom you met in the previous hearing, and Mr. McFadden from the Treasury's Budget Office and the Office of the Secretary, are accompanying me.

With your permission, I would like my prepared statement to be inserted into the record. I would like to summarize it briefly.

Senator GARN. It will be included in full in the record.
Mr. MCLAUGHLIN. Thank you, sir.

[The statement follows:]

(243)

STATEMENT OF JOHN J. MCLAUGHLIN

Mr. Chairman and Members of this distinguished Subcommittee:

I appear before you today to discuss the administrative expenses of the Treasury Department's Office of New York Finance. My testimony covers three major areas:

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A brief history of the New York City Loan Guarantee
Act and Treasury's activities under it;

A review of Treasury's additional responsibilities
imposed by P.L. 95-497 in monitoring the continuing
participation of the City and State pension funds
in the City's Four-Year Financial Plan; and

The level of appropriations Treasury believes neces-
sary for the 1982 fiscal year.

The Guarantee Act

The New York City Loan Guarantee Act of 1978 (P.L. 95-339) authorizes the Secretary of the Treasury, during the City's fiscal years 1979-82 (expiring June 30, 1982), to issue up to $1.65 billion of Federal guarantees of City long-term debt. The guarantees are the core of a four-year, $4.5-billion, long-term financing plan aimed at restoring the City's physical plant while it undertakes massive fiscal reform.

To date, $1.05 billion of guarantees has been issued in the first three years of the Plan. The remaining guarantees may be issued in the City's fiscal year 1982 (July 1, 1981 through June 30, 1982) if the City' demonstrates the need for such financing and otherwise meets the requirements of the Guarantee Act.

The City's Financing Plan has been revised several times to adapt it to changing financial conditions. Over the past year, the expectations for the City's market reentry in fiscal years 1981 and 1982 have been lowered as a result of the unlikelihood of the major credit-rating agencies giving the City's bonds an investment-grade rating in the near future. These adjustments were built into the latest revision of the Financing Plan. A further revision will be submitted in May of this year.

The Guarantee Act requires that the Secretary make a series of determinations prior to the extension of each round of Federal guarantees, the most important of which are that:

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the City has the capacity to repay the federally
guaranteed indebtedness,

the City is unable to obtain credit elsewhere in
sufficient amounts and on reasonable terms,

a financing plan satisfying the City's short- and
long-term needs exists and is sound, and

the City is making substantial progress toward
balancing its budget in accordance with generally
accepted accounting principles (GAAP) by its fiscal
year 1982.

The Guarantee Act also requires the City to achieve both its short- and long-term financing in the public credit market as soon as practicable. The City has successfully financed most of