Under the President's proposal, non-needy students would be most affected by the proposed block grant. Approximately 15 million students (about 30 percent of the national school enrollment) could be affected. If Federal funds were no longer available to fund lunches for non-needy students, school food service systems could continue to serve them either at a higher meal charge to the student, or with greater state and local contributions, or a combination of both. If the entire additional cost were borne by the non-needy student, meal charges would increase by approximately 25 cents (up from an average of 50 cents presently), and the cost of a half-pint of milk would increase by about 5 to 7 cents (up from 6 cents presently). The total cost to be borne, then, to make up this price increase would be approximately $750 million. (The remaining $450 million in reduction from the current policy level results from caseload growth expected under current law for which there would be no new funds.) Rural elementary school children from families above the poverty line and primarily from the Southeast, Southwest, and Midwest would most likely be adversely affected by the block grant. Infants (under age 1) now receiving benefits in the special supplemental feeding program would be excluded from being served under the grant monies. V. Conclusion Over the last 2 decades, total government outlays have increased steadily as a proportion of GNP, due principally to the growth of State and local government expenditures. A significant source of support for increased State and local spending has been increased Federal grants in aid, which have risen as a proportion of both Federal outlays and State and local outlays. At the same time, Federal control over State and local uses of grant funds has declined, through moves to general revenue sharing and block grants. A basic question underlying this year's budget decisions is-"Should these trends continue?" The current recession complicates this year's decisions. Grant increases will help state and local governments over a difficult period when their revenues are cyclically low and their service demands cyclically high. Grant reductions will in most cases disrupt strained State and local budgets and prompt service cutbacks and tax increases which will work a hardship on people in need and undermine national economic recovery. However, directions can be set which will allow fiscal relations to develop along desired future paths. Antirecession grants provide a flexible tool to address the current needs of State and local governments and national economic recovery without forcing long-run Federal-State-local fiscal relationships down any particular path. For the longer-run, a number of structural directions are possible. One which has been recommended by the Labor and Public Welfare Committee involves grant increases above current policy levelprincipally for education and jobs-without major change in program structure. Another is to follow the President's conceptual approach and (1) renew revenue sharing with multiple year funding, (2) extend the Law Enforcement Assistance Administration block grant, and (3) consolidate existing categorical programs into four new block grants in the education, health, child nutrition, and social services areas. This will continue the trend toward less Federal control, which should result in program efficiencies and a reduced or stabilized need for Federal aid. Spending options corresponding to this choice concern how much saving over current growth trends is possible and how quickly it can be realized. The major options include: -Maintain expenditures at current policy level for fiscal 1977 and aim to stabilize the dollar amount or reduce the rate of growth of Federal grants over the period 1978-80 as a result of consolidation. -Accept the President's proposal of $9.3 billion in cutbacks from current policy, which will reduce the dollar amount of fiscal year 1977 Federal grants slightly below their estimated fiscal year 1976 level. -Make selective consolidations this year, but not as broad as proposed by the President, and selective grant reductions or stabilizations where efficiencies can be achieved or functions eliminated. A third possible direction is toward considerably reduced Federal grants to State and local governments, continued Federal control over use of the remaining funds, and federalization of key national services such as welfare and health finance, which will eliminate the need for sizable State and local matching contributions. This approach could result in a higher or a lower effective level of support for State and local governments depending on the relative size of reductions in State and local financial obligations and Federal grant assistance. Decisions this year which correspond to this direction include -adoption of renewed general revenue sharing with provision for less than 5-year funding; -elimination of LEAA block grant, with limited funding retained for specific innovative approaches to improve criminal justice; and -commitment to key national service programs, such as welfare reform and health insurance, to be bought in the future with the proceeds of economic growth and reduced general support for State and local governments. Under all of the above possibilities, properly scaled antirecession grants are appropriate to address current State-local fiscal needs without making any unwanted permanent funding commitments. This year's decisions can serve both the short-run and the long-run. If one wishes to achieve long-run goals of stabilized or reduced size of government or savings from grant consolidation, there is no need to cutback sharply on grants and disrupt State and local fiscal positions now in order to do so. At the same time, if one wishes to move in a new long-run direction, there is no need to sacrifice this year's important opportunity to do so on account of concern for the present strained condition of State and local budgets. Preface This paper was prepared to provide background for the deliberations of the Senate Budget Committee prior to its markup of the First Concurrent Resolution on the Budget for Fiscal Year 1977. The report was prepared by James R. Storey of the Senate Budget Committee staff. Franklin Jones, Senator Domenici's staff representative on the Committee staff, made a major contribution to the report. Also contributing to the report were Becky_Beauregard and Karen Schubeck of the Committee staff and Jack Burby, an editorial consultant. Numerous staff of the Congressional Budget Office developed background materials from which much of the factual material in the report was drawn. 72-678-76—7 EDMUND S. MUSKIE, Chairman. |