January 25, 1983

January 25, 1983 | Backgrounder on Federal Budget

Saving $111 Billion: How To Do It - Part 2

(Archived document, may contain errors)

241 January 25, 1983 SAVING $1

11. BILLION: HOW TO DO IT PA.RT 2, TRANSPORTATION, REGIONAL DEVELOPMENT THE NATIONAL DEBT INTRODUCTION Ronald Reagan can slash $89 billion in outlays and raise nearly $22 billion in revenues, thus chopping $111 billion from the projected $200 billion 1984 budget deficit. Some $15 billion of this deficit reduction can be made in the national security and natural resources sectors detailed in Part I of this series.

Another $44 billion can be cut from the human services sectors described in Part 1

11. And in the areas of transportation economic development and the national debt, savings of $52 billion in fiscal year 1984 are possible l The challenge for the Reagan Administration is to find the way for better services to be provided at lower cost to the taxpa y er. This can be accomplished through the New Federalism the transfer of services to states and local government and to the private sector. This places the responsibility of paying for services with the users of those services. State and local roads and ma s s transit systems, for instance, provide localized and definable benefits to the residents of a particular area. The federal government spends approximately $14 billion annually to fund these systems. But construction, maintenance, operation and supervisi o n of highway and transit systems could be undertaken more efficiently if the responsibility for expenditures and revenile collection were localized. It is unlikely, for example that the taxpayers of New York City would have allowed salaries of subway toke f i booth attendants to escalate nearly 200 percent while productivity declined in the 19?Os, if New Yorkers had to foot the bill directly. But those salaries soared in large part because the federal government subsidizes New York City subway operating expe n ses Most federal business development programs, such as the Small Business Administration and Urban Development Action Grants 2 similarly rob Peter to pay Paul. general economy to subsidize enterprise in a local business sector or urban community In effec t , the government taxes farmers in Wisconsin and autoworkers in Michigan to fund community centers in California They siphon money from the Managing the trillon dollar national debt also offers a chance for great savings. The 1984 deficit, in fact, could b e cut $30 billion by restructuring the financing of the debt. By issuing price indexed bonds the Treasury can cut the effective risk premium it pays to investors from two or three hundred basis points to less than one hundred points. This would sharply red u ce the interest payments on the national debt without imposing any cutbacks in federal services In the following budget analysis, each program is listed by subfunction number, the form in which the President and the Congressional Budget Committees submit their proposals to Congress. Under each program are three figures-estimated outlays for 1983 1984, and the economists' recommendations for 19

84. The first two figures are based, wherever possible, on the Congressional Budget Office's (CBO) July 1982 basel ine outlays, so they represent the authorized expenditures if there were no policy changes. difference between 1984 CBO baseline and our recommendation is shown as the budget saving based on the recommended change. the conclusion of each paper, the progra m s are also grouped by The At 1 appropriation committee, to permit cross-reference 370) COMMERCE AND HOUSING CREDIT 376) MINORITY BUSINESS DEVELOPMENT AGENCY (MBDA Outlays in millions of dollars 1983 65 1984 65 Heritage Foundation 0 Possible Savings: $65 m illion Proqram Description: The MBDA was formed to encourage the development of minority business.

Program Chanqe: The MBDA has had negligible impact on the growth of minority business. minority firms. Much of the aid has gone to consultants rather than di rectly to businesses and, as congressional hearings have discovered, to firms with Ittokentt minority owners. Additionally, the government assistance to business often creates dependency on government contracts instead of private customers for their livel i hood. minority entrepreneurs and should be terminated It has tended to assist larger The program is not an effective mechanism to help 3 376) U.S. TRAVEL AND TOURISM ADMINISTRATION Outlays in millions of dollars 1983 1984 HF 6 7 0 Possible Savings 7 milli on.

Program Description: The Travel Administration was created. in 1981 to encourage tourists to visit the United States.

Proqram Change: There is no justification for the government to subsidize travel promotion; the enormous private travel sector is cap able of this without federal assistance 376) SMALL BUSINESS ADMINISTRATION (SBAL Outlays in millions of dollars 1983 69 7 1984 7 13 HF 488 Possible Savinqs 225 million.

Program Description: The most costly function of the SBA is providing subsidized and guaranteed loans to small businesses.

Program Chanqe: While small businesses are the primary job creators in the economy, subsidized government loans are not the way to help small firms. The SBA definition of llsmallfl is now so inflated that it is, meanin gless. Moreover, the program has insulated inefficient firms from healthy competition for investment funds.

The most effective way to stimulate small business firms would be to cut taxes and government regulation. The federal government should end its inv olvement in the loan business. This would save the business loan and investment fund 200 million in 1984, and more later, without seriously diminishing small business development.

Using these savings to reduce the deficit or increase tax cuts would be far more helpful to the small business community than subsidized loans. The SBA should concentrate its resources on data collection, research and information.

Commensurate with the reduced loan activity, salaried personnel and expenses can be cut 10 percent, saving another $24 million 376) FEDERAL COMMUNICATIONS COMMISSION Outlays in millions of dollars HF 1984 19'83 79 83 75 Possible Savings 8 million. 4 The FCC regulates domestic, interstate and foreign communica tions by radio, television, wire, cable and telephone. Chairman Mark Fowler has begun a program of what he calls lfunregulation.lf These efforts should continue. One way to do so is through budget cuts In particular, savings could be realized if the Commission changed its allocation policy for gran t ing licenses for spectrum use either to an auction system or a 1ottery.l Through such a simplification of its activities, the FCC budget should be cut by 10 percent 376) FEDERAL TRADE COMMISSION Outlays in millions of dollars 19 83 1984 71 74 HI 61 Possib le Savinqs 13 million.

Program Change: FTC Chairman James Miller has asked for the authority to close four of the FTC's ten regional offices. He believes that this will increase Commission efficiency and yield budget savings. Miller had asked for a $60.8 m illion budget for 1983 on the assumption that those offices could be closed. This request should be granted in 1984 400) TRANSPORTATION 401) FEDERAL AID TO HIGHWAYS (TRUST FUND Outlays in million of dollars 1984 1983 8,212 8,800 2,400 Possible Savings: $6 ,400 Program Description: The Federal Highway Administration provides funding for building and maintaining interstate highways primary state roads, secondary and urban roads, bridge replacement and miscellaneous projects.

Program Change: The federal government should provide highway aid only to finish and maintain the integral segments of the interstate highway system. Over the years, the federal government's role has been expanded to fund highways, roads, and bridges whic h benefit primarily localities and states Douglas Webbinh, "Communications Airwaves The Private Sector Option,"

Heritage Foundation Backgrounder 224, November 2, 1982. 5 If the of national federal government concentrated only on highway needs importance, a bout $27 billion in budget authority could be shifted from the Federal Highway Administration back to state and local governments over four years. About $21 billion would come from returning full responsibility for urban and secondary roads back to states and redefining the interstate system to include only projects that serve interstate, commercial and passenger traffic. Another $6 billion would come from return ing responsibilities for primary highways to the states In keeping with the President's New Fe deralism initiative the revenues from the 5 cents gasoline tax should be returned to the states as a block grant during 19

84. In subsequent years the responsibility for levying the tax should be given to the states.

The federal gas tax will be paid large ly by users of local and state primary and secondary roads. The $5-$6 billion in new revenues per year should finance the new state responsibilities If the programs were devolved to the states over a four-year period, the savings to the federal government in 1984 would amount to 6.4 billion 401) INTERSTATE TRANSFER GRANTS HIGHWAYS Outlays in millions of dollars 1983 1984 200 26 1 0 Possible Savings 261 million.

Program Description: This program provides funding for new state and local highways. Under it, s tate and local governments may petition the federal government to cancel a proposed interstate highway segment considered not essential to the interstate system.

When a petition is received, Congress may authorize funds, equal to the value of the cancelle d highway segment, toward the construc tion of another new highway or mass transit project. As of December 31, 1981, nearly $10 billion in obligations had been incurred through this program.

Proposed Change: The federal government should not be funding hi ghways that neither the state nor the federal govern ment considers an integral part of the national highway system and that are of purely state or local importance certainly should not be obligated to construct local highways at the bid and call of state and local governments And Washington 401 URBAN MASS TRANSPORTATION GRANTS Outlays in millions of dollars 1984 1983 3,395 3,494 Possible Savings 2,390 million HF 1,104 6 Program Description: UMTA provides federal aid to assist the capital and operating exp e nses of urban mass transit systems and provides finance for the development of new projects. The program was instituted in 1964 to purchase private mass transit systems that were going bankrupt as urban populations became decentralized with the rise of fr e eway systems. In 1974 the authorization was amended to allow UMTA to subsidize operating costs in addition to capital costs exploding deficits and plummeting productivity. In the early 1970s, before the federal government subsidized operating costs transi t revenues covered 90 percent of operating costs late 1970s, that figure dropped below 50 percent. Deficits increased 800 percent as ridership declined by more than 4 percent and passenger miles per dollar fell 30 percent subsidies to mass transit. Taxpaye r s nationwide should not be paying the costs of operating local transit systems. They are not a national concern. Many local systems, in fact, are thriving without federal aid. The San Diego rail line, for example, was recently completed ahead of schedule a t one-tenth the cost of a similar system funded by the federal government. It may be, of course, that mass transit aid reduces fares for lower income riders. But if this is deemed necessary, it should be directed only to those in need, not to all riders r egardless of income.

Local areas should turn from supply subsidies to consumer oriented subsidies. The city of Oak Ridge, Tennessee (pop 28,000), for instance, provides transportation for its senior citizens for a total of $15,000 per year. Instead of spen ding an estimated $60,000 to develop a new public system, the city developed a plan with taxidrivers in which senior citizens pay 25 cents of a slightly reduced fare, and the city the rest. By letting the market-the senior citizens-determine the supply of transit through demand, and providing services through private profit making carriers, the city offers a valuable public service at a fraction of the cost of typical public service could follow this example, providing citizens with transit coupons to enco u rage private systems. Under such a system some mass transit systems might close and other means of transport would emerge. For most cities, however, including New York and Chicago probably would respond to consumer shifted demand by moderating their exces sive operating and discretionary expenses.

Congress should eliminate all operating subsidies ($1.22 billion) and funding for new systems ($1.17 billion) in 1984.

All capital e5penditures should be phased out by 1989 The history of federal involvement in m ass transit is one of By the Proqram Change: Congress should eliminate all federal Other cities 401) INTERSTATE COMMERCE COMMISSION (ICC Outlays in millions of dollars 1983 19 84 73 76 7 Possible Savings 12 million.

Proqram Description: The ICC regulates interstate surface transportation carriers It was established originally to regulate the railroads and later began active oversight of trucking.

Recent deregulation efforts at the ICC should be pursued more rapidly Program Change: There are several ways i n which less inter vention would allow a more efficient system of trucking to develop while reducing the cost of the Commission. For example, the ICC's role in issuing licenses to truckers should be entirely eliminated in FY 1984, a significant scale-down should begin While it may not be possible to complete this change 401) WASHINGTON, D.C., METRO Outlays in millions of dollars HF 1984 1983 295 295 0 Possible Savinqs 295 million.

Program Description: The federal government provides the Washington, D.C., M etropolitan Area Transit Authority with funding for construction of the Metrorail system local transit systems. The case for subsidizing the affluent Washington D.C., c.ommuter is especially weak. The federal govern ment is expected to provide Metro with $ 50 million in capital subsidies. Additional budget authority of up to $45 million is available from interstate transfer grants. All'federal funding should be discontinued Proqram Chanqe: The federal government should not subsidize 401) NATIONAL RAILROAD P ASSENGER CORPORATION AMTRAK Outlays in millions of dollars 1983 755 1984 808 HF 0 Possible Savings $808 million.

Proqram Description: Amtrak is the controversial 'federally subsidized national railroad system. As reported in a recent Heritage Foundation Backgrounder,2 the system.Ithas cost the U.S economy over $12 billion and more than 125,000 jobs in the last ten years In 1981, Amtrak lost nearly $900 million while receiving subsidies of $38.30 per passenger, or more than 23C per passenger mile. This 'is more than 100 times the federal subsidy John Semens, "End of the Line for Amtrak," Heritage Foundation Backgrounder No. 226, November 9, 1982 8 for any other mode of transportation. Though the system has been jus tified on grounds of energy efficiency, it actually is less efficient than any other form of modern transportation. According to Amtrak's own projections, ,only revenues on the Northeast Corridor routes will cover 1983 operating costs.

Some routes do not meet federally legislated standards.

This includes the Cardinal Route, which runs from Washington D.C., to Chicago-via West Virginia. According to Administration officials, this route continues to be subsidized only because of the political power of West V irginia's Robert Byrd, the Senate's Democratic leader. Funds also subsidize intrastate and community systems to eliminate Amtrak funding and to sell the system to the private sector Legislation should be introduced in the next Congress 401) FEDERAL RAILRO A D ADMINISTRATION Outlays in millions of dollars HI 1984 1983 Office of the Administrator 7 8 0 Railroad safety 27 0 b 26 Railroad research and development 32 34 0 Rail service assistance 54 57 0 Northeast corridor improvement 185 201 0 Railroad rehabilita tion and improvement 66 71 0 Total 422 445 0 Possible Savings 445 million.

Proqram Description: The Office of the Administrator railroad safety program, and railroad research and development program provide money for federal enforcement of safety regula ti ons and standards, automated track inspection, development of new safety regulations, and a grants-in-aid program for railroad safety. The rail service assistance program finances track rehabilitation, assists reorganization of bankrupt railroads guarante es loans for rail improvement, and provides formula grant assistance to states for rehabilitation and rail planning projects.

The Northeast Corridor improvement program aims to improve Amtrak service between Boston, Massachusetts, and Washington, D.C. The railroad rehabilitation and improvement program provides loan guarantees and grants to rehabilitate sub-standard train tracks.

Program Change: The Federal Railroad Administration should be abolished along with its counterproductive programs should compete without government subsidies against all other forms of transportation. Federal regulation and safety standards Railroads 9 have been superseded by state safety rules, while the courts enforce personal and business' liability laws. Railroad maintenance a n d repair costs should be paid by the beneficiaries of rail services, not the general taxpayers. Federally subsidized and owned railroads should be returned speedily to the private sector where profitable services will undoubtedly be improved, unprofit abl e lines abandoned, and high labor costs brought into line with similarly skilled workers in unsubsidized industries 401) ALASKA RAILROAD REVOLVING E"D Outlays in millions of dollars 1983 1984 13 11 0 Possible Savinqs 11 million.

Proqram Description In the early 19OOs, the federal govern ment constructed a 470-mile railroad in Alaska to transport coal.

Today, the railway is used mainly for private purposes kd for the transport of jet fuel. The Administration has recommended turning over the railroad to the state of Alaska.

Proposed Chanqe: The railroad is profitable and is a local concern which should not be funded by the federal government.

Congress should simply give the railroad to the state of Alaska 401) FEDERAL HIGHWAY ADMINISTRATION Fees in millions of dollars HF 1984 1983 user fees -0 0- 2,000 Possible Savings 2,000 million.

Program Description: Federal highway spending for building repaving, and repairing interstate, primary, urban, and rural highways will top 9 billion in 1984.

Proqram Change: T he federal government should begin charging tolls on segments of existing interstate highways and, where feasible, plan toll financing to complete the unfinished segments of the interstate highway system. France, Spain, Italy, and Japan rely heavily on to ll roads for their intercity links.

While the fraction of the current interstate system that can be converted easily to toll management cannot be calculated precisely transportation economist Fred A. Smith, estimates that about half the interstate system c ould be self-financed, generating perhaps as much as 10 billion in toll revenues per year.

Toll revenues would provide additional revenue for the much-needed repair of the interstate system. Unlike a gas tax 10 which is a very inefficient form of user fee, tolls can be adjusted to approximate the damage imposed by highway users, and can be rais e d to reduce traffic flow during peak hours or lowered when traffic is light. Toll roads assure greater efficiency in road building. If highways do not generate sufficient toll revenues to justify the investment, they probably should not be built or retain ed. The federal government should begin charging tolls to finance highway maintenance and to cover ,construction costs 402) CIVIL AERONAUTICS BOARD CAB Outlays in millions of dollars HF 1984 1983 27 27 0 Possible Savings 27 million.

The CAB was created in 1938 to regulate the commercial airline industry 1978, however, the phase-out of airline regulation and, hence the CAB was begun With the Airline Deregulation Act of October The Board should be abolished in 1984 402) FEDERAL AVIATION ADMINISTRATION FAA AI RPORT AND AIRWAY TRUST FUND Outlays in millions of dollars I I HF 1984 1983 268 275 0 Possible Savings 275 million.

Proqram Description: This FAA program provides airports with grants for construction and modernization of new equipment runways, and other airport related facilities.

Proqram Change: These facilities are properly a cost that should be borne by local airport authorities and their users.

The federal government should not be subsidizing these facilities 402) AIR TRAFFIC CONTROL (ATC) OPERATING Outlays in millions of dollars HF 1984 1983 2,385 2,369 169 Possible Savings 2,200 million.

Program Description: This activity covers the operation of the national system of air traffic management. The program includes equipment, salaries, maintenance, development, and the administration of the air traffic control system.

I 11 Proqram Chanqe: Most traffic control functions should be turned over the the private sector. In a recent Heritage Founda tion study3 Robert Poole outlines how this could be accomplished.

Not only would a private system be more efficient and safer, it would ensure that those using the system bear the costs. The federal government should only continue .to monitor standards 403) COAST GUARD Outlays in millions of dollars 1983 1984 offs etting user fees 2,621 2,759 2,759 Possible Savinqs 1,500 m.illion.

Program Description: The Coast Guard's operating expenses will be approximately 1.5 billion in 1984 charges nothing for virtually all of its services: navigational aids, search-and-rescue operations, and marine safety The Coast Guard Program Change: The Coast Guard should charge a direct fee for boat licenses and inspections, and set an annual fee for other services including navigation aids and search-and-rescue services 403) FEDERAL MAR ITIME COMMISSION Outlays in millions of dollars 1983 12 19 84 12 HJ 0 Possible Savings 12 million.

Program Description: In the Reorganization Act of 1961 Congress separated responsibility for administration of the regulatory aspects of shipping (i.e., tari ffs and conferences from the promotional aspects (i.e., government subsidies and loan guarantees for ship construction The FMC was created as an independent agency to handle the regulatory aspects, with the latter functions placed under the Maritime Admin i stration within the Department of Commerce Robert Poole Air Traffic Control: The Private Sector Option Heritage Foundation Backgrounder No. 216, October 5, 1982. 12 Program Chanqe: There is considerable confusion in the industry and in the Congress over w h ere federal maritime policy is made and administered of the FMC to the Maritime Administration within the Department of Commerce would be a welcorne.means of providing more effective and coherent Merchant Marine policy. The FMS should be abolished A trans fer of the regulatory functions OCEAN. SHIPPING SUBSIDIES Outlays in millions of dollars 1983 454 HF 1984 43 1 0 Possible Savings 431 million.

Proqram Description: The Maritime Administration provides subsidies of about $150 million annually for the construction of U.S. flagships in U.S. shipyards. It aiso provides subsidies of about 300 million for the operation of U.S. flagships.

Program Chanqe It costs half as much or less to construct a ship in some foreign shipyards as it does in an American yard It a lso costs half as much or less to operate a ship with a foreign crew. If the argument for continuing these subsidies is truly one of national defense it would.cost less to buy ships built in foreign yards and mothball them here. These subsidies should be discontinued 450) COMMUNITY AND REGIONAL DEVELOPMENT 451) URBAN DEVELOPMENT ACTION GRANTS (UDAG Outlays in millions of dollars I 5 22 537 0 Possible Savinqs 537 million.

Program Description: UDAG provides financial assistance to units of local government t o be used in conjunction with private and other funds in promoting locally designed and managed economic development projects. It is intended to help revitalize cities and urban counties by stimulating new investment, jobs, and revenues.

Program Change: A January 1982 HUD report indicates that between 16 and 25 percent of UDAG funds were spent unnecessarily since the projects would have bqen done in the private sector.

Some internal analysts suggest the figures are actually between 25 and 50 percent. There are, moreover, significant amounts of fourth quarter spending in the program, suggesting that money is being .Ildumpedll to preserve future funding. 13 Federal funding of local projects is inappropriate. If states feel that the UDAG mec hanism is useful, they,could design state UDAG programs. financed out of block grant or state funds.

The federal program should be abolished 452) APPALACHIAN REGIONAL DEVELOPMENT (ARD Authority level in millions of dollars 1983 1984 270 233 0 Possible Savings 233 million.

Proqram Description: The ARD Commission provides grants to thirteen Appalachian states, either directly to the states or through other federal agencies for community infrastructure housing, economic development, and job creation. The high way program provides funds for the construction of regional highways and access roads to places of "potentiali1 economic development.

Proposed Change: A substantial amount of federal funds has already been pumped into this prosram. Consistent with the obj ectzve of consolidating programs and reassigning responsibility for economic development to state and local agencies, the program should be phased out. Morever it seems speculative and inappro priate for the'federal government to be providing local access roads to potential development areas. The program should receive 452)'ECONOMIC DEVELOPMENT ADMINISTRATION (EDA Outlays in millions of dollars) no further authority HF 1984 1983 267 268 0 Possible Savings 268 million.

Program Description: EDA offers loans, loan guarantees interest rate subsidies, grants, and other forms of assistance to local governments and businesses. Its original purpose was to aid Ifdistressed areas." But by the late 1970s, the program was broadened so much that 84.5 percent of the nat ion's population was deemed eligible for EDA aid.

Program Change: The EDA duplicates other development grants and private investments. The program warrants no further federal funding. 14 452) BUREAU OF INDIAN AFFAIRS (BIA Operation of Indian Programs Outla ys in millions of dollars 1983 1984 HF 501 524 454 Possible Savinqs 70 million Program Description: The federal government provides grants trainhg, technical assistance, loans, and subsidies in an attempt to strengthen the management and economic developm ent of tribes.

Program Chanqe: According internal budget analyses at the Department of Interior, Regional' BIA Offices are overstaffed by about 23 percent and could-easily manage a decrease in budget authority.

GENERAL PURPOSE FISCAL ASSISTANCE 851) OFFIC E OF REVENUE SHARING Outlays in millions of dollars HF 1983 1984 4,573 4,894 0 Possible Savings: $4,894 million Program Description: The Office of Revenue Sharing was established in 1972 because it was believed that the federal government was more capable than the states of raising taxes.

Since then the revenue generating ability of state and local tax systems has grown considerably funds to approximately 39,000 local jurisdictions with little federal control The program currently provides Proqram Chanqe: Revenue sharing does not "create" money for states. The federal government merely collects it and then gives it back, less $7 million in federal salaries and expenses.

Revenue sharing'should be eliminated along with the federal taxes which finance it, and the states shoul-d take over the responsibility for assisting local government 900) INTEREST 901) INTEREST ON THE PUBLIC DEBT Outlays in millions of dollars 1983 1984 HF 157,000 149,000 181,000 Possible Savings: $32,000 million 15 Program Description: Th e U.S. Treasury issues and bills.to finance over 1.3 trillion in national bonds, notes debt. The Treasury will also have to raise funds to finance the projected 175 billion deficit and 20 billion off-budget defict in 1983 I Program Change: The federal gove r nment could be more creative in financing the national debt. Milton Friedman has suggested that the Treasury could issue inflation-indexed bonds to-finance at least part of the national debt. These notes would pay a negligible coupon (to be determined by t he market,) because the bond principal would be indexed to the rate of inflation measured by a price index. Historically the Itreallt rate of return on Treasury bills has been close to zero-evidence that Treasury notes are purchased as hedges against infl a tion. Interest rates (7.5 percent) are greater than current inflation (4.5 percent) because investors fear renewed inflation. Price indexed bonds would elminate this tlinflationary expectationsll premium thus saving the Treasury 3 percent per dollar of de bt per year, given today's rates. Under the current maturing structure this would save approximately $24 billion in 1984.

The Treasury would also be sending a clear signal to the financial markets that the Administration is determined to end inflation.

Tr easury costs would balloon. The purchasing power security offered by the bonds would also be welcome news to small and large savers alike If the Administration allowed inflation to reignite 901) INTEREST SAVINGS FROM REDUCED EXPENDITURES Possible Savinqs 1,650 million.

Cutting the deficit $111 billion would save the Treasury approximately $1.65 billion in interest expenditures in 1984.

This is based on the CBO estimate of 55 days average debt outstand ing and a 'Ibaseline1l interest rate of 7.5 percent, saving $1.3 billion. Further cutting government outlays should reduce interest rates at least another 3 percent, leading to additional savings of $350 million 999) REPEAL OF DAVIS-BACON Possible Savings 2,800 million.

Program Description: The Davis-Bacon Act, passed by: Congress in 1931, requires contractors on federally funded construction projects to pay the vtprevailinglt wage, meaning generally the wage paid to at least 30 percent of similarly employed workers in a locality. Since union members are more likely to be paid an identical wage rate, the so-called 30 percent rule often leads to the use of the higher union wage scales in fed e ral projects rather than the average construction wage. By artificially inflating wage levels, Davis-Bacon distorts the labor market and 16 leads to higher levels of unemployment in the construction industry and drives up construction costs for the federa l government.

Proposed Change: Davis-Bacon and other prevailing wage laws should be repealed SUMMARY In this second part of the analysis by Heritage Foundation economists 52 billion in possible program savings have been identified in the areas of transport ation, economic development, and interest on the national debt. This is not intended to be a complete account of possible cuts--additional savings can be accomplished. It is clear that the new Congress, in cooperation with the White House, must take decis i ve action now to reduce the size of federal budget, if deficits are to be cut and the economic health of the country restored defense, international aid, energy, natural resources and agricul- tural supports. human services programs Part I of this analysi s proposed savings of $15 billion from Part 111 targets $44 billion in savings from John Palffy Policy Analyst With the Assistance of The Heritage Foundation's Domestic Studies Staff I SUMMARY OF PROGRAM CHANGES L I Outlay Revenue Reductions Increases mill i ons millions FOREIGN OPERATIONS United Nations (151 Agency for International Development (151 Export-Import Bank (155 507 60 3,950 4,517 DEPARTMENT OF AGRICULTURE P.L. 480 (151 Commodity Credit Corporation Special Milk Program 605 Nutrition Assistance to W omen, Children, and Infants Food Stamps (605 Child Nutrition 605 Wool and Mohair Subsidy (351 DEPARTMENT OF THE TREASURY Federal Election Commission (806 Federal Retirement System (602 DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND EDUCATION LRB (50 5 State Education Block Grants (501 Impact Aid (501 Compensatory Education for the Disadvantaged (501 Adult and Vocational Education 501 Bilingual Education (501 Education for the Handicapped (501 Howard University 501 Higher and Continuing Education (502 S tudent Financial Assistance (502 Guaranteed Student Loans (502 Student Loan Debts (502 Women's Education Equity Program (502 Corporation for Public Broadcasting (503 Work Incentives (504 Employment Services Administration (505 Human Development Services 5 0 6 Community Service Block Grants (506 Tax Medical Insurance (550 Medicare (551 National Institutes of Health (552 Alcohol, Drug Abuse, and Mental Health (552 835 48 32 297 3,065 900 5,177 10 4,600 4,610 156 222 1,240 46 7 140 333 45 150 3,434 1,000 48 548 1,000 289 162 289 361 1,700 400 48 4,800 18 Outlay Revenue Reductions Increases millions millions Social Security (601 Low Income Energy Assistance (609 AF'DC (609 1,000 9,100 5 75 30 12,641 14,900 DEPARTMENT OF HOUSING AND LIRBAN DEVELOPMENT Urban Develo p ment Action Grants (451 Housing Assistance Section 8 (604 Consumer Product Safety Commission (554 EPA: Salaries and Expenses (304 EPA: Research and Development (304 EPA: Abatement and Compliance (304 EPA: Construction Grants (304 General Revenue Sharing ( 8 01 Appalachian Regional Development (452 DEPARTMENT OF DEFENSE Military Retirement (051 Military Procurement (051 Military Operation and Maintenance (051 Military Personnel (051 DEPARTMENT OF ENERGY Gas Centrifuge Enrichment Plant (GCEP) (271 Clinch River Breeder Reactor (271 Fossil Energy Research and Development (271 Synfuel (271 Solar Energy Conservation (272 Energy Conservation (272 Energy Information Assistance (276 Economic Regulatory Administration (276 Energy Department Administration (276 Bureau o f Reclamation Construction (302 Civil Corps of Engineers (301 537 5,000 35 108 61 155 560 4,894 233 11,583 163 3,250 10 1,033 4,456 613 370 428 38 38 500 63 55 60 99 1,300 2,264 1,300 DEPARTMENT OF THE INTERIOR Soil Conservation Service: Watershed and Floo d Prevention (301) 27 National Forest Service: Timber Sales (302) 205 Abandoned Mine Reclamation (302) 77 19 Outlay Revenue Reductions Increases millions millions Urban Parks Recovery Program (303 Indian Education (501 Indian Affairs (452 National Foundati o n on the Arts and Humanities (503 Strategic. Petroleum Reserve (274 DEPARTMENT OF TRANSPORTATION Federal Aid to Highways (401 Interstate Transfer Grants (401 Urban Mass Transit (401 Interstate Commerce Commission (401 Washington Metro (401 AMTRAK (401 Aid to Alaska Railroad (401 Federal Highway Administration (401 Federal Railroad Administration (401 Civil Aeronautics Board 402 Federal Aviation Administration (402 Air Traffic Control (402 Coast Guard (403 JEPARTMENTS OF JUSTICE, COMMERCE, AND STATE Minorit y Business Development Administration (376 U.S. Travel Service Administration (376 Small Business Administration (376 Federal Communications Commission (376 Federal Trade Commission (376 Federal Maritime Commission (403 Ocean Subsidies (403 Economic Develo p ment Administration (452 Legal Services Corporation (752 Criminal Justice Assistance (754 National Telecommunications Information Administration (503 National Oceanic and Atmospheric Administration (306 INTEREST Interest on the National Debt (901 Interest Savings from Reduced Deficit (901 Repeal of Davis-Bacon (999 Elderly Exemption (999 31 91 70 57 365 9 23 6,400 261 2,390 12 295 808 11 445 27 2 75 2,200 13,124 2,000 1,500 3,500 65 7 225 8 13 12 43 1 268 269 74 17 20 1,409 24,000 1,650 2,800 28,450 200 20 0 2,375 2,375

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