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Budget reverses disinvestment in cities and towns.

President Clinton submitted his $1.5 trillion 1994 budget detailing many of his long-term investment plans last week. The budget asks Congress to make major cuts in defense spending and to raise taxes $240 billion over the next four years to help reduce the federal deficit by more than $440 billion and finance a $168 billion long term human and public investment plan.

For the nation's cities and towns, the budget proposes to reverse the disinvestment of the last decade and to level out assistance to local governments in the coming years.

It would provide a modest increase in the Community Development Block Grant (CDBG) program, significant increases for transportation and job training, reauthorization and permanent extension of priority municipal tax programs, but cuts in aid to finance federal environmental mandates. A more detailed analysis of the key issues affecting cities and towns will appear in the April 19th edition of Nation's Cities Weekly.

The President's budget proposes to increase total federal spending by just over three percent next year and to increase tax revenues by nearly nine percent. Within the budget, the President proposes a reordering of federal spending and taxing priorities.

The Clinton budget does not incorporate the budget agreement just passed by Congress, forcing the President to reassess his long-term investment program almost immediately. Because the administration's budget exceeds the spending levels set by Congress for discretionary programs by about $15 billion over the next two years, the White House will have to revise its own priorities in negotiations with the Congress over the next six weeks.

As proposed, the President's budget sets major priorities for:

* Rebuilding Communities: investment for highways, housing and technology.

* Lifelong Learning: new investments of $52 billion over the next four years in full funding for Head Start and the Women, Infant and Children feeding program, national service, educational reform, and job training.

* Rewarding Work: $32 billion in tax incentives to take working families out of poverty by expanding the Earned Income Tax Credit.

* Economic Conversion: $19 billion over the next five years to help convert local economies affected by base closures and cuts in defense contrasts.

* Restoring Safety in Cities: $4 billion over the next four years for a partnership with state and local agencies on initiatives for community policing programs and training, scholarships for students pursuing careers in state and local law enforcement, and support for a background check system to prevent the sale of handguns to unauthorized persons.

* Health Care: $32 billion iover five years for health care and health care research.

Paying for Unfunded Mandates

For cities and towns faced with escalating costs of unfunded environmental mandates, the most significant cut is in capital assistance through the EPA state revolving loan fund (SRF) to help cities comply with federally mandated municipal wastewater treatment construction. The budget proposes to continue the program, rather than phasing it out, but to cut funding by 33 percent from current levels. There is no comparable cut in secondary treatment, combined sewer overflow, or stormwater mandates for cities.

Even while cutting funding for Clean Water compliance, the budget proposes creation of a new state revolving loan fund to provide low interest rate loans for cities and towns to help comply with federal Safe Drinking Water mandates. The budget proposes capitalizing the new loan program with $600 million next year, and investing nearly $4 billion over the next four years.

Taxing Questions

By far the greatest contributor to deficit reduction under the President's plan would be federal tax increases. The tax numbers were not released with the President's budget. Key issues affecting municipal finance are expected to be released within the next few weeks. U.S. Treasury Secretary Lloyd Bentsen said "The news on revenues is, there is no news."

The Treasury has already proposed reauthorizing expired priority municipal tax programs, and it plans to issue a new initiative on enterprise zones soon.

In response to a question raised by many municipal leaders, the President's Deputy Budget Director, Dr. Alice Rivlin, indicated at a White House briefing on Thursday that the administration is aware of state and local concerns about whether the administration is proposing to impose the new BTU energy tax directly on states and local governments, but she said she was not certain if a definitive decision had been made yet.

The major tax increases include:

* raising individual tax rates for high income persons

* an income surtax

* closing loopholes

* raising corporate taxes

* cutting deductions for lobbying lunches

* eliminating the Medicare tax cap

* increasing the amount of Social Security subject to taxes

* a broad based BTU tax.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Apr 12, 1993
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