Plenary Session Transcripts

Governors Attending:

Guests:

Discussion Subjects:

Economic outlook for 1974; FY75 budget; energy; and reorganization of the National Governors' Conference (NGC)

Points of Interest:

Vice President Gerald R. Ford told governors at an opening plenary session that he believed local people "can solve local problesm better, and with less waste, than the people in Washington, however well-meaning, and whatever party the federal overseers may be."

Foremost on the minds of Governors were the energy crisis associated with an embargo against the United States by the Organization of Petroleum Exporting Countries (OPEC), and the status of the economy—particularly vis-à-vis the nation's energy problems.

The Advisory Commission on Intergovernmental Relations had just released a report indicating that if trends continued, states were expected to lose up to $2 billion in motor fuel tax revenues in 1974 as a result of gas shortages. Additional general revenue losses could also be expected, due to lower consumer purchases of other items as a means of offsetting the high cost of gasoline.

A panel of economists presented their views on the economic outlook. Herbert Stein noted that unemployment was rising as industrial production declined. Not only had the energy crisis caused food and energy prices to rise; it had also spurred greater demand for small cars that the U.S. auto industry was not yet prepared to meet. However, Stein's view was that gasoline uncertainty would stabilize, increased supplies of meat would help slow the rate of food price increases, and there would be a rise in new starts of residential housing.

In contrast, Arthur Okun argued that 1974 would be a year of recession. Although the Federal Energy Office had helped to avert massive layoffs and industrial dislocation by directing fuel to the business sector, gasoline price increases for individuals at the gas pumps were resulting in lower consumer demand for other products, in turn reducing production and threatening jobs. To help stem this tide, Okun recommended rolling back oil prices—a position with which his fellow panelists disagreed. He also advocated cutting federal payroll taxes to help relieve tax liability for lower- and middle-income workers.

Finally, Alan Greenspan agreed with Herbert Stein that the recession was nearing an end, due in part to a decline in energy consumption in response to the OPEC oil embargo. However, he expressed the belief that if federal expenditures continued to rise at their present rate, they would exceed the capability of the economy to absorb them without causing inflation.

With respect to federal expenditures, Roy Ash, Director of the Office of Management and Budget, noted that while the FY75 budget reflected an increase of 11 percent from FY74, 90 percent of that increase was for expenditures that could not be controlled, such as Social Security, Medicare, Medicaid, and Supplemental Security Income. And he emphasized that one-half of the budget, totaling $164 billion, was going back to individuals and to state and local governments. In response to a question about whether—given the loss of revenue that states had experienced as the result of lower gas consumption—the federal government would release impounded highway and other funds to the states, Ash said that the economy required a longer-term assessment before such a decision could be made. Noteworthy was the fact that several states had sued the federal government for the release of impounded funds, and while Missouri had won its case, there was concern as to whether other states would—without a Supreme Court decision in their favor—receive their fair share. A decision was made to refer the issue to the Governors' Conference's Transportation Committee for study.

Bill Simon, Deputy Secretary of the Treasury and Administrator of the Federal Energy Office, presented Governors with figures on gasoline allocation that would take place among the states the following month (March) in accordance with federal legislation that had been enacted in 1973 to help distribute available fuel equitably. The allocation plan relied on two formulas. The first was based on each state's February's usage, adjusted for the larger number of days in March as well as for anticipated seasonal changes in consumption. The second formula compared February usage state by state with usage two years earlier, adjusted by the interim change in the number of vehicles registered in each state. If the result after both formulas were applied was that a state's allocation came to less than 85 percent of anticipated demand, its allocation would be adjusted upward to 85 percent.

States were limited at this point with respect to the internal distribution of their allocations. But the Federal Energy Office was considering rewriting regulations within the constraints of the law to give states greater intrastate distribution authority.

Governors expressed concern that vehicle registration was not a sufficient measure of an individual state's gasoline need. A state that depended on tourism, for example, would require gasoline for out-of-state vehicles. Governors were also concerned that while farmers had been assured their fuel needs would be fully met—as was to be the case for industry generally—their dependence on gas at the pump put them at the mercy of gas regulation to which other business users were not subject.

Presentations were then made by one Governor from each region of the country about their particular concerns. Speaking on behalf of mid-Atlantic states, Governor Milton Shapp of Pennsylvania called the energy allocation system inefficient because of its reliance on inadequate or unreliable data, and he complained that many refineries, operating at lower than full capacity, had excess crude oil supplies that they were selling to other refineries, driving prices upward.

Governor J. James Exon of Nebraska said that members of the Midwestern Governors' Conference favored increased state fuel setasides, federal financing of state expenditures in the allocation of fuel, and the acquisition of more accurate and reliable information on which to base decisions (such as highway construction) that were dependent on gasoline allocation. The Governor also argued that using the number of registered vehicles as a measure of gasoline allocation discriminated against Midwestern states, where agriculture was a more important factor to consider.

Governor Bruce King of New Mexico said that experts in western states should be consulted regarding their production of natural gas, oil, coal, and uranium.

Governor Thomas Salmon of Vermont cited a recent study indicating that New England might be required to pay more than other sections of the country for energy supplies. He suggested that the imbalance could be diminished by a nationally imposed acquisition price for fuel and other petroleum products, as well as by reasonable rates for power from electrical grids elsewhere in the country.

Governor Edwin Edwards of Louisiana said that while New England states believed consideration needed to be given to their dependence on the importation of oil supplies, by the same token they had opted to sit on oil reserves while states such as Louisiana had undertaken the risk and cost of oil exploration and production. Nonetheless, these producing states were—according to Bill Simon's figures—slated to receive less fuel per day in March than in February. Edwards argued that the federal government's allocation formula should consider a factor of depreciation for energy producing states.

In response to the regional presentations, Bill Simon said he agreed on the importance of permitting states to define their own classes of priorities, so long as there was no discrimination within classification. He also emphasized that efforts were under way to improve the collection of data on which to base fuel allocation decisions. At the same time, the federal government was reluctant to increase state setasides for fear that it would create a larger fuel shortfall. Simon said that the fuel allocation act did not permit consideration of factors such as the one recommended by Governor Edwards, to which the Governor responded that this might be cause for action by producing states.

At the meeting's close, Governors devoted time to discussing reorganization of the National Governors' Conference, and they voted to disaffiliate from the Council of State Governments, establish their own bylaws, hire staff, and establish a headquarters in Washington. Governors also agreed to look into the possibility of changing the requirement for a three-fourths vote for policy consideration, which had grown out of partisanship that occurred during the early 1960s over civil rights issues.

Also discussed was the potential for an endorsement of a Franklin Mint issuance of state flags, which would result in royalty payments to the Governors' Conference that could be used to embark on specific research projects.

Memorable Quotes:

Governor Daniel Evans of Washington said this about the advent of federal revenue sharing: "…state governments…have been reviled, disparaged, ignored and discounted in both academic and political circles, not to mention by citizens generally. The "failures of the states" have been chronicled for years, most energetically since the 1930s when political scientists saw the national government as action oriented and state government as reluctant and timid. David Brinkley in 1967 said that "States are pretty much disappearing as a political force; they are almost through."…The late Senator Everett Dirksen, in a characteristically orotund sentence, predicted in 1965 that in the not too distant future "the only people interested in state boundaries will be Rand-McNally." Perhaps the saddest commentary on the state of the states during the 1960s came from former Senator Joseph Tydings who wrote... "In recent years, [states] have been increasingly bypassed as federal funds to cure urban ills go directly to our cities. Unless the states act decisively to shake off their lethargy, and meet the challenges of this decade and the next, they will wither on the vine."…I, for one, simply am not content to see the states or the office of the Governor "wither on the vine."…We have, for too long, allowed others to take massive credit for domestic programs while the majority of funds have come from state and local tax dollars. The Great Society Program of the 1960s capitalized on a direct federal-local government concept. Because it failed to recognize the necessity of statewide planning and coordination, many of the even conceptually valid programs have faltered. Since then the states have been in the vanguard in calling for intergovernmental coordination and responsibility. In an effort to decentralize the federal government and return decision making to the people, the national administration announced the beginning of the new federalism in 1969…the concept was vigorously supported by state and local officials who have utilized the theory and practice of revenue sharing for many years."

Bill Simon, head of the Federal Energy Office, said this about how the energy crisis had been addressed: "We attempted, and I believe succeeded…to get the refineries to maximize middle distillate production which is the necessary feed stock for industry; the feed stock for utilities as well as heating oil for homes. We did this at the expense of producing gasoline…we believed the American people would rather suffer some inconvenience and hardship rather than lose their jobs, and this was our tradeoff. We have believed, and we do believe to this day, that we can take care of the lines at the gasoline stations. But we can't get a man's job back through our allocations once he has lost it."

Governor Milton Shapp of Pennsylvania said: "During the prohibition era, there was a quip that prohibition is better than no booze at all. Unfortunately, the same cannot be said for the gasoline allocation system which, right now, is so ineffective, unfair, and restrictive that the nation might be better off with no allocation system at all."

Then-Governor Jimmy Carter of Georgia said with regard to the proposal for the National Governors' Conference to acquire its own staff and establish a headquarters in Washington: "…there is no clear-cut identity of the National Governors' Conference the way the present structure exists as far as staff work to focus upon the major decisions made at the National Governors' Conference Meeting in the summer, and as far as independent identity for the Governors themselves here on Capitol Hill in Washington. This recommendation…will…give the National Governors' Conference more individual identity, and we can support our own positions as Governors, and strengthen the testimony of Governors on Capitol Hill, and our voice in public affairs, and the other ancillary benefits as we pass resolutions…and…those resolutions can…have an impact upon the nation and on positions taken in Congress."

In contrast to Governor Carter's position, Governor Malcolm Wilson of New York argued against NGC breaking from the Council of State Governments, saying: "…in my judgment what is proposed is…an injudicious and potentially counter productive response to what is a very real problem…each of us knows there is no such thing as a right without a corresponding responsibility, and…if we speak of states rights we obviously must be ready to assume state responsibilities, and the whole concept of the joinder of states through the Council of State Governments has been to seek, among other things, to foster and stimulate interstate cooperation…When I consider what is proposed before us today…I suggest that we are falling victim—partly at our own hand—to the divide and conquer technique…I have spent 35 years in and with the legislature, and hence, I recognize fully the coequal status of the legislative and executive branches of government. But…citizens…regard their Governor—as indeed they should—as the one who speaks the voice of the state in policy matters especially as they relate to Washington. It would seem to me, then, that the concept of separating the Governors from…the Council of State Governments…would be in my judgment divisive…and I, indeed, would find grave difficulty…in justifying to the taxpayers calling upon them to provide what I suggest is a duplicative expense in terms of staffing…"

Policy Positions Adopted:
(1) Supporting the orderly release of impounded highway funds, to be made available to states without a requirement for state matching; (2) calling for congressional action to mandate retention of existing Air and Army National Guard forces; and (3) urging that Congress and the Administration cooperate by executive action and any necessary enabling legislation to decrease the price of liquefied petroleum gas [propane] to the consumer.