154

The system of state and local finance in the 20th century, as pointed earlier, is marked by the continuous growth of expenditures. In contrast to federal spending, the expenditures of state and local budgets are relatively more static. They react less to the fluctuations within the economy even in periods of a sharp decline in business activity. The revenue sources of state and local budgets, based on regressive taxation, display less susceptibility to changes in the economy. This enables state and local authorities to keep expenditures at relatively high levels.

Table VI-1 Expenditures of State and Local Budgets in Relation to the Expenditures at All Government Levels (million dollars) State and local Fiscal At all go- Per Per Per years vernment levels Total cent of total State cent of total Local cent of total 3 : 2 5 : 3 7: 3 1942 45,576 10,914 23.9 3,563 32.6 7,351 67.4 1950 70,334 27,905 39.6 10,864 38.9 17,041 61.1 1960 151,288 60,999 40.3 22,152 36.3 38,847 63.7 1968 282,645 116,234 41.1 44,304 38.1 71 ,930 61.9 1969 308,344 131,600 42.7 49,448 37.6 82,152 62.4 Source: Statistical Abstract of the United States 1971, p. 399. 155

p But in comparison with the increase of the GNP the growth rates of expenditures of state and local authorities have slowed down in recent years. Between 1957 and 1962 the GNP increased by 20 per cent and the expenditures of state and local budgets, by 48 per cent. In the next four years the GNP rose by 33 per cent, while the state-local expenditures rose only by 35 per cent.  [155•1 

p The larger increase in nominal expenditures in the postwar period is partly explained by rising inflation and the consequent substantial increase in the cost of measures financed by state and local governments.

p The deflator of prices of goods and services bought by state and local governments rose during this period by 3.5 per cent annually on the average as compared with the 1.5-per cent deflator for the GNP. In the opinion of Lawrence R. Kegan and George P. Roniger, the main factors of growth in prices of government purchases will also be preserved in 1965-1975 and will amount to 40.8 per cent as compared with 17.8 per cent for consumer goods prices.  [155•2 

p If we consider the natural increase in population, the real rise in expenditures after the Second World War was even smaller and was close to that of 1913-1938.

p Yet a number of objective factors, determined by general economic development and demographic changes, dictate the need for increasing state and local expenditures. While formerly vital public welfare programmes were financed largely by the federal Treasury, in recent years an increasing part of spending for these purposes has been shifted to state and local authorities.  [155•3 

p The federal government, however, continues to take an active part in grant-aiding these measures, thus exercising its influence on the allocation not only of federal but state and local resources. The increase in spending after the war 156 by state and local governments was facilitated by the big decline in construction during the war, especially of public utilities. Subsequently this demanded substantial expenses both for reconstruction and expansion of public utilities and the building of new ones.

The main expenditures of state and local budgets are the general expenditures which cover all types of public services except the outlays for public utilities and government security funds. In 1968, of the total sum of $116,234 million for all expenditures, general expenditures amounted to $102,411 million or 88.7 per cent.

Table VI-2 General Expenditures for Civilian Purposes for Selected Years from 1902 to 1969  [156•1  (million dollars) Fiscal year At all government levels State and local Per cent of state and local to all 4 : 2 1902 1,243 1,013 81.5 1927 8,631 7,210 83.5 1938 13,397 8,757 63.4 1948 26,397 17,684 67.0 1966 108,607 82,843 76.3 1968 152,474 102,411 67.2 1969 171,428 116,728 68.1

p The biggest items in the general expenditure of state and local governments are education, highways, public welfare, health and hospitals. They accounted in 1969 for 73.5 per cent of the total as compared with 64 per cent in 1942.

p The expenses for building highways were kept at a high level but after the peak reached in the mid-1950s a downward tendency emerged.

p The large share of expenses for specific social measures is the result of the imposition of this type of expenditure on state and local budgets in the distribution of financial competence between the federal government and the state 157 Table VI-3 Direct General Expenditures of State and Local Governments  [157•1  for Selected Years from 1902 to 1968 1902 1927 1938 1942 1948 1960 1968 Total (million dol- lars) 1,013 7,210 8,757 9,190 17,684 51,876 102,411 Per cent of total Education 25.2 31.0 28.5 28.1 30.4 36.1 40.2 Highways 17.3 25.1 18.8 16.2 17.2 18.2 14.1 Public welfare 3.7 2.1 12.2 13.3 11.9 8.5 9.6 Health and hospi- tals 5.9 4.9 6.3 6.4 6.9 7.5 7.4 All others 47.9 36.9 34.2 35.9 33.6 29.9 28.7 authorities. The total share of the expenditure for education and public welfare and health and hospitals is not indicative of the distribution of the corresponding appropriations on the wide scale of government spending. Thus, in 1969, the outlays for education through state and local budgets amounted to $47,238 million out of the entire state expenditure ($50,377 million) for this purpose. In local and state budgets they amounted to 40.5 per cent of all the direct general expenditures and in the federal budget only to 3.7 per cent.

p The expenditure for education is the biggest item in state and local budgets and their share in the general expenditure is steadily rising. In the last 15 years, beginning with 1955, the expenditure of state and local governments for education (including federal grants) fluctuated between 93.7 and 97.4 per cent of the entire government spending for this purpose. Practically all governmental appropriations for elementary, secondary and higher education go through state and local budgets.

In recent years the expenditure for education amounted to more than 40 per cent of the total general expenditure of state and local budgets.

158 Expenditure for Education  [158•1  Table VI-4 State and local Fiscal year At all government levels (million dollars) Sum (million dollars) Per cent of expenditure at all government levels 1902 258 255 98.8 1927 2,243 2,235 99.6 1942 2,696 2,586 95.9 1950 9,647 7,177 74.4 1960 19,404 18,719 96.5 1968 43,614 41,158 94.4

p The increase in the education expenditure in the last decade is determined by the specific features in the economic development of the United States linked with the scientific and technological revolution—the accelerated conversion of scientific and technological achievements into an important element of the productive forces. A certain role in this respect has been played by the economic competition with the Soviet Union which registered impressive successes in education and in a number of fields has arreatly outstripped the USA.

p The guided system of education offered a possibility to regulate the long-term development of individual sectors of the economy and research through the training, selection and placement of personnel.

p A change in the quality of education, the use of new organisational forms adapted to the demands on narrow specialisation together with the general inflationary tendencies, raised the cost of training per student.

p The objective factors which dictated a general increase in expenditures for education have been: a) an increase in population; b) growth of the urban population engaged in industry, management and the service spheres which demand a higher level of general and vocational training as compared with rural localities; c) the need for reducing the 159 cost and improving the quality of export goods as a result of greater competition in foreign markets from European countries and Japan; d) a narrowing of the technological gap which for a long time created favourable conditions for US foreign trade.

p Thus, the general increase in the expenditures of state and local governments for education has been the result of economic and demographic changes in the country as well as increased state-monopoly influence on the development of individual sectors of the economy, including the armaments industry and the training of personnel.

p But education expenditures have proved to be inadequate for achieving the specified aims. On the contrary, funds for specific educational programmes have been very unevenly allotted and in a number of regions, particularly in cities, the situation has become extremely unsatisfactory. Many states and cities are urgently in need of school buildings and there is a shortage of teachers. Kenneth A. Gibson, the Mayor of Newark, declared that education was Priority Number One. He stated in a report submitted to Congress of January 22, 1971: “We are saddled with an ancient physical plant and an inadequate per pupil municipal expenditure.” He further noted: “Our physical structures were allowed to deteriorate for many years—between 1930 and 1955, for instance, only three new elementary schools were constructed. Of Newark’s 84 schools almost half were built over 60 years ago."  [159•1 

p Increase of appropriations directly for educational needs cannot fully solve the problem of improving education, even if sufficient funds are provided. Other conditions, linked with the material position of the population, especially low-income families, are required for a thorough-going improvement in the quality and scale of education. “ Increasing concern with school dropouts, the quality of education in slum areas, and the interrelationships of social and economic circumstances with educational aspirations and 160 achievements, however,” Ida C. Merriam writes, “again point up the relevance of education to social welfare."  [160•1 

p Solution of the financial aspect of the educational problem is negatively affected by the limits imposed by the federal government on states in utilising the federal resources allotted them. The numerous federal grant-aided educational programmes have a narrowly designated character, specifically for the development of specialised research in space exploration and the development of new weapons which meet above all the interests of the federal government. Such utilisation of financial resources is hardly relevant to social needs.

p Both the state and local authorities are unable to utilise the grants for education to meet the most urgent needs in this field. Moreover, they point out that depreciation of the dollar and population increases reduce to naught the absolute rise in expenditures for these purposes.

p A characteristic feature of state-local expenditures for education, as is the case, incidentally, for other sociocultural functions, is their uneven distribution among individual states and counties. In 1969, with an average per capita expenditure for education of $234 in state and local budgets, in some states this sum exceeded $300, while in others it was less than $200. In Wyoming the per capita expenditure was $336, Alaska $390, Utah $312, New Mexico $295, Arkansas $157, Mississippi $173, Tennessee $175 and the District of Columbia $225. Such fluctuations are also registered in other states.  [160•2  These statistics reveal that with the generally inadequate resources provided for education in all areas, individual states are in particularly difficult positions, spending for educational programmes much less per capita than the average and half as much as states with maximum funds. Moreover, within states there are wide differences in expenditures between individual counties, municipalities, townships and school districts.

p The absence of nation-wide unified standards of expenditures, the differences in incomes and resources at the 161 disposal of state and local authorities, contribute to the uneven public services and education provided for the people.

p There are noticeable differences in the share appropriated for education in states with an approximately the same level of expenditure per 1,000 dollars of personal income. In Connecticut, with a $188 expenditure per $1,000 of personal income in 1968, $69.77 per capita was spent for education with the per capita expenditure for this purpose being $167. In Minnesota with an expenditure on education of $83.25 per cent $1,000 of personal income, the per capita figure was $255. Naturally such a system of allocation of public funds creates the preconditions for population migrations and the future shortage of skilled personnel. On the other hand, this further widens the gap in the economic and social positions of the population in different parts of the country.

p Expenditures for public welfare occupy a leading place in the general expenditure systems of state and local budgets. In 1969, they amounted to $12,110 million or 9.2 per cent of the entire general expenditure of state-local governments and about 82.2 per cent of all government appropriations for public welfare. A large part of the expenditures for different forms of relief and services to the aged and the needy, the maintenance of orphanages, and so on, is met by state and local governments from their own sources. The share of federal aid in public welfare is comparatively small.

The bulk of all government resources allotted for public welfare are spent through the budgets of state and local governments. In the post-war period almost all the expenses for public welfare were made through the state and local budgets and only beginning with 1967 has their share in the general national expenditure somewhat declined as a result of an increase in outlays by the federal government for benefits and services to war -veterans and their families. In 1942 they amounted to 13.3 per cent of the general expenditure of state and local budgets; in 1950, 13 per cent; in 1955, 9.4 per cent and in 1966, only 8.2 per cent.  [161•1  But since 1968 the share of the expenditure for public 162 welfare has begun to rise again and in 1969 it reached 10.4 per cent of the general expenditure of state and local budgets.

Expenditure for Public Welfare  [162•1  (million dollars) Table VI-5 At all government levels State and local Per cent of state and local in total 1902 41 37 90.2 1927 161 151 93.8 1942 1,285 1,225 95.3 1960 4,462 4,404 97.0 1968 11,245 9,857 87.7 1969 14,730 12,110 82.2

p Intergovernmental spending includes grants to state and local governments.

p Simultaneously the ratio between the state and local governments’ expenditures for public welfare has been changed in the direction of increasing the share of state expenses. In 1950, of the $2,940 million used for public welfare, $2,358 million (80 per cent) was spent through the states; in 1969 of the $12,110 million, $10,866 million or 89.7 per cent was spent through the budgets of states, including help by states to local authorities. The slow but steady increase in the role of states in respect to expenditures formerly made through budgets of local bodies attests to the concentration of finances in the hands of higher administrative agencies.

p Yet big differences in expenditures for public welfare between states remain. For example, in 1969 Massachusetts, California and New York spent more than $100 per capita, while Wyoming, South Carolina and Indiana, less than $25 per capita.  [162•2  The disproportion in expenditures is noticeable in other states as well. In 1968, nine states spent 163 for public welfare less than $30 per capita and nine other slates and the District of Columbia about $55 or more.  [163•1 

p The expenditure for health and hospitals occupies fourth place in general expenditures of state and local budgets and in recent years amounted to just over 7 per cent. In view of the fact that in the United States medical service is paid for by the individual, only a small part (about one-fourth) of all expenses for these purposes are financed by government funds. In 1969 $8,520 million was spent for health and hospitals through state and local budgets (states, $4,703 million and local governments, $3,817 million) or 65.9 per cent of all government spending. The outlays for building, repairing and maintaining hospitals totalled $7,011 million and for other medical services, $1,509 million.

p Notwithstanding the swift rise in medical care needs, the share of expenditures for health in state and local budgets decreased in the last 20 years. In 1950, expenditures for health and hospitals amounted to 7.7 per cent of the general expenditure under state and local budgets and in 1967 they dropped to 7 per cent. In 1968 they rose by 0.4 per cent, and then again declined by 0.1 per cent in 1969.

p Health and hospitals have been a sector of public services with a very low level of investments. In 1969, out of the total expenditure of $8,520 million for health and hospitals, investment appropriations from state and local budgets amounted to $761 million, i.e., less than 10 per cent. The outlays for construction were $622 million or less than 8 per cent. Moreover, federal appropriations for the construction of medical institutions amounted to only $83 million, in other words, the bulk of these expenses was borne by state and local budgets.

p Per capita expenditures by state and local governments for health and hospitals are small—an average of $42 per annum. But some states spend considerably less. In 1969, 14 states spent less than $30 per capita; North Dakota and South Dakota, $21 and $19 respectively. At the same time, five states and the District of Columbia spent from $50 to $118 per capita. On the whole, however, fluctuations in expenditures by states are somewhat smaller here than in 164 Expenditure for Health and Hospitals  [164•1  (million dollars) Table VI-6 At all government levels State and local Per cent of state and local to total 1902 63 60 93.7 1927 431 355 82.4 1942 714 591 82.8 1960 5,244 3,794 72.3 1968 10,579 7,546 71.3 1969 12,930 8,520 65.9 public welfare appropriations. There are greater differences in the outlays for health and hospitals per $1,000 of personal income. With an overall average of $12.46, 15 states spent less than $10, two states (North Dakota and South Dakota) less than $8, while 9 states and the District of Columbia spent from $15 to $26 per $1,000 of personal income.  [164•2 

p As a result of the rapid development in motor transportation after the Second World War, expenditures of state and local governments on the building, repairing, and maintenance of highways sharply increased. The high economic value of motor transportation, as well as its military strategic significance, predetermined the federal government’s interest in expanding the network of highways mainly in interstate commerce.

p Thus, the Federal-Aid Highways Act of 1956  [164•3  provided for the building of national systems of interstate highways and roads of military significance totalling 41,000 miles. Under this Act, states in part had to allot funds from their own sources in financing this programme.

Other Congressional acts for highway building programmes also envisaged the participation of states and their subordinated administrative units in financing these 165 programmes. Between 1946 and 1969 the outlays in state and local budgets for building, repairing and maintenance of highways increased from $1,672 million to $15,417 million and in 1969 comprised 13.2 per cent of their entire general expenditures.  [165•1  Although funds appropriated for building and maintaining highways are constantly ’increasing, their share in the general expenditures of state and local governments has decreased somewhat in recent years. This is explained by two main reasons: 1) the need to re-allocate expenditures in favour of items for which a minimum of appropriations is not ensured and 2) by the very high cost of road construction as compared with other civilian functions.

Table VI-7 Expenditure of State and Local Governments on Building, Repair and Maintenance of Highways  [165•2  (million dollars) Sum Per cent of the direct expenditure 1902 175 16.3 1927 1,809 25.1 1942 1,490 16.2 1950 3,803 16.7 1960 9,428 18.2 1968 14,481 14.1 1969 15,417 13.2

p In the $15,417 million spent by state and local governments for the building and maintenance of highways, a considerable part was played by federal subsidies. In 1969 they amounted to $4,162 million, and were somewhat smaller than in 1968—$4,196 million.

p In contrast to the outlays on education and public welfare and health, more than half of the expenditure for building and maintaining highways goes for capital investments. In 1969 they totalled $10,273 million,  [165•3  of which $8,827 million 166 was for construction, i.e., about 39 per cent of the entire expenditure on construction allotted within state and local budgets. Naturally, such a distribution of appropriations for investments over long periods freezes the funds obtained from the taxpayers and adversely affects the ability of state and local bodies to meet other needs. Funds for building and maintenance of highways are largely spent through state budgets, under programmes of interstate construction. In 1969 $12,522 million was spent from state budgets and only $5,045 million from local budgets, chiefly for the building and maintenance of highways connected with the development of cities.

p Thus, the present system of financing highway construction is such that the biggest part of the outlays and administrative responsibility is assumed by the states, while the federal government determines the size and geographical location of construction sites.

The share of all other general outlays under state and local budgets is comparatively small. But combined they make up substantial sums. In 1969 they added up to $33,443 million or 14.4 per cent of all direct expenditures and 28.6 per cent of the general expenditures.

Table VI-8 1950 1969 Million dollars Million dollars Per cent of total general expenditures Police protection 776 3,901 3.0 Local fire protection 488 1,793 1.4 Natural resources 670 2,552 1.9 Sanitation and sewerage 834 2,969 2.3 Housing and urban renewal 452 1,902 1.4 Local parks and recreation 304 1,645 1.3 Financial administration and gene- ral control 1,041 4,105 3.1 Interest on general debt 458 3,738 2.8 Source: Statistical Abstract of the United States 1971, pp. 402, 403, 399.

Of all these items the biggest are for maintenance of the police and payment of interest on the debt. Moreover 167 these items grow at higher rates—the interest on the general debt rose 7 times between 1942 and 1968, maintenance of the police, 4.4 times and financial administration, including general control, 3.5 times.  [167•1  But it is housing reconstruction, the maintenance of cities in an adequate condition that demand ever greater resources in view of the continued urbanisation process. Demands for considerable increase in appropriations for urban improvements in view of the critical situation in many cities are steadily becoming more urgent.