WASHINGTON - A top Democrat on the House Financial Services Committee is urging Congress to draft the stimulus package to include a "general revenue sharing" program for state and local governments that would provide aid to municipalities facing budget shortfalls as a result of the economic crisis.
Rep. Paul Kanjorski, D-Pa., the chairman of the House Financial Services Committee's capital markets panel, made the recommendation Friday in a letter to House Speaker Nancy Pelosi, D-Calif., and a congressional source said there would be a bond component to the program that would make it easier to issue tax-exempt debt in anticipation of the new federal funds.
Separately on Friday, a group of Democratic lawmakers called on the Bush administration to include in the $18 billion automaker rescue plan relief for transit agencies facing billions of dollars of termination payments from leaseback deals that technically defaulted after the guarantors' ratings were downgraded.
Kanjorski's revenue sharing proposal comes after he failed earlier this fall to convince the Federal Reserve and the Treasury Department to provide grants, loans or guarantees for state and local governments. Neither of the agencies said they could offer any assistance to states and localities, with Fed officials suggesting the governments seek help from the Treasury, and Treasury officials insisting that they ask for aid from the Fed.
"We cannot continue to wait as federal officials point fingers at one another or cross their fingers in hopes that some indirect effort will eventually provide trickle-down relief," Kanjorski wrote to Pelosi. "Municipalities need direct financial help now. The Congress must therefore step in and fix this problem, and the first opportunity for it to do so would be as part of the economic stimulus package that we will consider early on in the 111th Congress."
The idea of general revenue sharing stems from a program that was first proposed in 1971 by President Richard Nixon and created by Congress the following year.
The program came as a Republican response to the centralization of power in Washington through the Great Society initiatives created during the Lyndon Johnson administration, which led to the establishment of programs targeted towards the poor and minorities, such as welfare, model cities, and urban rehabilitation. It also was part of a greater strategy to replace categorical grants, for which governments had to apply and meet specific federal guidelines, with block grants that were based on a formula and came with fewer strings attached.
The idea was that states and localities knew best how to spend taxpayer dollars, said Bruce Wallin, an associate professor of political science at Northeastern University in Boston who wrote "From Revenue Sharing to Deficit Sharing: General Revenue Sharing and Cities."
"Philosophically, the benign argument from Nixon was that these decisions are too centralized, they should be closer to the people," Wallin said. "But some argue that it was a way to dismantle the Great Society programs by folding many of the categorical grants aimed at the cities into block grants with more discretion and lower funding."
The program pumped $7 billion a year into states and localities from 1972 through 1980. But states were then cut out of the program and the amount of annual revenue sharing dropped to $4 billion. By 1986, the program fell apart after state and local governments couldn't agree on whether the money should flow primarily to poorer municipalities, and as state and local lobbying groups lost power in Washington. Rising federal deficits also made it untenable to provide so much aid to local governments, which were operating under balanced budgets.
If Congress includes a general revenue sharing provision in the stimulus package, lawmakers would have to be clear about how they want the funds to be used, Wallin said. In the 1970s and 80s, a disproportionate amount of the funds went toward capital improvements out of concern from local officials that if they used the money to fund new services and the program was subsequently cut, they would have to lay off municipal employees or raise taxes. Wallin also said that Congress should consider a "maintenance of effort" provision to ensure that states aren't substituting federal dollars for state dollars that are already budgeted for the same purpose.
A congressional source said that Kanjorski would like general revenue sharing to primarily help municipalities, and that he would seek assistance for states separately.
A spokesman for Pelosi could not be reached for comment Friday, but a congressional source said that her office had been briefed on the matter.
In a letter to President Bush, 35 congressmen and senators, led by Reps. Jim Moran, D-Va., and Chris Van Hollen, D-Md., urged the president to consider, as part of the bailout package, allowing certain transit agencies to request the federal government or its designee to guarantee so-called sale-in/lease-out, lease-in/lease-out deals they entered into with banks to finance equipment purchases and rail projects.
A similar guarantee provision was included in automaker bailout legislation that was supported by the White House and passed the House, but failed in the Senate earlier this month. A White House spokesman did not return phone calls seeking comment.