a commuter tax. You have a lot of people I'm sure that come into New York City and use your city and go back to their homes-perhaps even some of your firemen and your policemen don't live in the city of New York. I know a little about New York City's internal problems. Many of your city employees live in Nassau and come in and get their salaries and go back and don't participate in the city; they don't spend much money in the city. Has anything ever been done by New York City or New York State to try to correct this situation? Mayor BEAME. Yes.

Senator BROOKE. What?

Mayor BEAME. First, I'd like to say I have had bills introduced in the legislature to require any employee to be a resident of the city. Those bills were not able to be passed.

Second, we have a commuter tax in New York State-at least the city has, but that commuter tax is only at one-eighth the tax on our own residents and we think it's completely unfair. But as I indicated earlier it's a question of reality. It's a question of politics. We cannot get that commuter tax because one of the houses of our legislature has great representation in the commuter areas and is not Democratic-and I say that with a capital "D".

Senator BROOKE. I saw you building up to that, being a Republican. Mayor BEAME. And we haven't been able to get support for it. We have asked for it every legislative session and the best we could have gotten is the one-eighth.

May I add one thing, Senator, and I think just to emphasize some things that Mayor Landrieu indicated, there's only one city in the country other than New York City which pays for welfare. I think there's only one other major city-and that's in a lot of numbers of cities by the way-that pays for education. I think that's Baltimore. In every other city involving welfare, it happens that it's either paid by the county or the State.

With respect to education, as you know, there are separate school districts, separate taxes which has nothing to do with the government. Now if we want to have the same kind of situation, somebody take over our welfare and it should be the Federal Government, and I'm glad to hear you agree with it; and if we had a separate tax for school taxes which has nothing to do with the government of the City of New York, which gets its money out of one pot, our budget would be cut from its $12.3 billion down, $5.3 billion, reduced by 40 percent.

Senator BROOKE. I think that's one of the most compelling arguments that the State has not done all it could do.

Mayor BEAME. We are going to get after the State if we can get both houses to agree on giving aid. Now one house did pass aid to New York City. The other house didn't.

Senator BROOKE. Thank you. Mr. Chairman. Thank you, Mr. Mayor. The CHAIRMAN. Senator McIntyre?

Senator MCINTYRE. Mayor Beame, we now come to a point in fact where the securities of New York City and all its agencies and many of its political subdivisions, not just New York City, for all practical purposes, are being boycotted by the national investment community. Would default by the city actually help the State and its agencies? Mayor BEAME. It's the general opinion, not only in State govern

ment, but what we hear from the financial community, that the State would be in a very serious financial condition if New York City defaulted; that it could conceivably create that kind of problem for New York State.

Senator MCINTYRE. So default would not help?

Mayor BEAME. No. I think it would hurt.

Senator MCINTYRE. Thank you, Mr. Chairman.

The CHAIRMAN. Well, gentlemen, thank you very, very much for an impassioned expression of your position and a most persuasive one. We are very grateful to you. You have made a fine record.

Our next witnesses will be the Honorable David H. Rodgers, mayor of Spokane; and the Honorable Richard Carver, mayor of Peoria. Gentlemen, we have many witnesses and we don't have much time, so I hope that you will come to order as soon as we can.

I understand that mayor Carver cannot be present and he has a very short statement, and I understand you will read it on his behalf. Mayor Rodgers, we are very happy to have you here, and Senator Garn is very sorry he couldn't be here, but he's asked Senator Brooke to introduce you.

Senator BROOKE. Senator Garn would have said this if he could have been here: "Mayor Rodgers, Mr. Chairman, I'm very sorry that commitments in Utah during the recess prevent my attending this hearing on the committee on the issue of Federal assistance to New York City. I am very pleased that these hearings provide the opportunity for all views to be expressed. I am especially pleased whenever the chief executive of one of our nation's cities is present at congressional hearings. I believe those elected mayors and councilmen to be in the front lines of government where they deal face to face with the real problems of our country. One of those appears before the Committee today and is here in response to an invitation from the Committee which I initiated. He is Mayor H. Rodgers of Spokane, Washington, elected first in 1967 and reelected twice since. Mayor Rodgers' present term expires in 1978. He has been a progressive and active mayor and has successfully fought the battle of balancing his city's budget during his years in office, including guiding them to the production of the world's exposition last year. Mayor Rodgers is here to make his own statement on the issue before the Committee. I know nothing of his position except that we are in agreement on the necessity of demanding fiscal responsibility of our elected officials and making them accountable for their actions. He speaks for himself and I assure the Committee that he's representative of a great many of his fellow mayors around the country. I thank him in advance for his willingness to appear here today and discuss his view of this important issue. He also has with him a statement from mayor Richard Carver of Peoria. Illinois.

The CHAIRMAN. Mayor Rodgers, go right ahead.

STATEMENT OF DAVID H. RODGERS, MAYOR OF SPOKANE, WASH.

Mayor RODGERS, Mr. Chairman and Distinguished Members of the Committee on Banking. Housing and Urban Affairs, I'm Mavor David Rodgers of Spokane and am most appreciative of the invitation to appear before your honorable presence.

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If I may, I will read a one-page statement that Mayor Carver dictated over the phone and asked me to read it for the benefit of the Committee. I quote Mayor Carver.

STATEMENT OF RICHARD CARVER, MAYOR OF PEORIA, ILL.

"It is my position that the Federal Government is faced with two alternatives. The first is to guarantee a portion of the debt of the City of New York in order to provide them with sufficient cash flow to meet their obligations or, second, to take no action and allow the city of New York to go into receivership. I prefer the second, to take no action and allow the city of New York to go into receivership. I prefer the second course because it will then become mandatory for the city to bring its expenditures into line with income.

"My position is predicated on the conviction that a 'bail out' would lead every city and State, as well as municipal bond investors, to believe that, in the event they are unable to service their own debt, they can rely on the Federal Government to bail them out.' My position also assumes the probability that the bondholders will not lose their money, but rather will be paid on a deferred basis."

That's the end of his quotation and Mayor Carver also asked to place in the record the position of the board of directors of the Illinois Municipal League. The board passed a motion, introduced by Mayor Carver, to the effect that no emergency assistance be given the city of New York unless the city had first demonstrated fiscal responsibility and the proven ability to repay any debt that the Federal Government might guarantee.

That's the end of Mayor Carver's comments.

The CHAIRMAN. Fine. All right, sir.

Mayor RODGERS. I will proceed now with my own comments.
The CHAIRMAN. Go ahead.

Mayor RODGERS. An unconditional "bail out" of New York City or any other city by the Federal Treasury would be "an invitation to irresponsibility" to every local government and public employee union in the country. Such action would, in effect, condone and freeze into the system the excesses which have led to the present crisis. I am assuming that no one is seriously considering such action.

A conditional "bail out" requiring commitments to austerity and to sound fiscal management as a precondition of Federal guarantees would seem to require a solution by New York City before Federal help was actually delivered.

On one hand, if New York City could qualify under realistic preconditions, one has to wonder if Federal help is really needed.

On the other hand, if the preconditions have no substance and are simply an excuse to gloss over a Federal handout, we would then have issued that "invitation to irresponsibility" to public officials, creditors, and public employee unions across the land.

The long-term implications of big brother standing in the wings to bail out debt-burdened cities and their creditors or to underwrite irresponsible demands of public employee unions is a very, very serious and distressing concept.

As I see it, there are three roots to this crisis. They are as follows: 1. Financial institutions have loaned money to people who cannot pay it back.

2. Public employee unions have forced wages, fringes, and, particularly, pensions that the taxpaying public is unwilling to pay and, I am afraid, in some cases, unable to pay.

3. Public officials are unable or unwilling to say "no" to unreasonable demands on government.

The responsibility for resolution of these problems properly rests with those who created them. The realistic effect of Federal intervention would be to postpone and gloss over the current problems and set up another crisis down the road. Even worse, it would condone irresponsibility and increase the probability of similar problems all over the country.

Federal concern in this matter should be one of containment. Containment of the financial impact to the parties currently involved and containment of the excesses that have generated this crisis.

It is my impression that most competent authority discounts the possibility of a general financial collapse should New York City default. However, if people knowledgeable in the financial community convince the Congress that this is a possibility and, if some new Federal legislation is needed to effectively contain the impact to a New York arena within which the parties at interest could resolve their problems, such legislation would be in the public interest.

Reduced to its essentials, my plea is that the Congress recognize the problems that will be created for hundreds of mayors throughout this land if Congress should establish the dangerous precedent of underwriting the excesses that brought on the current crisis.

Many cities have defaulted during this century, yet their basic services were maintained and they are viable communities today. I am sincerely convinced that the union officials, the creditors, and the public officials of New York City, along with the tremendous and conscientious efforts demonstrated by the State of New York can resolve their problems without involving the remainder of the Nation.

Again, thank you for the opportunity to be heard.

I will do my best to answer your questions.

The CHAIRMAN. Thank you very much, Mayor Rodgers, for a forceful and effective statement. You seem to be on the basis of the presentation we had from Mayor Laudrieu pretty unique. One out of 13, I think, was the way he put it. You said the executive committee of the U.S. Conference of Mayors met and adopted a resolution supporting assistance in New York, by a 13-to-1 vote. How do you answer that? Are you just speaking for a small minority of mayors or do you think this board is not representative?

Mayor RODGERS. I think I probably speak for the majority. When I speak of the majority I am talking about every mayor in the country. The board of the National League of Cities was polled, I think, by telephone. I am not on that board. I think the true feeling of the mayors of this Nation will probably be determined the first week in December, when the National League of Cities holds its meeting in Miami. At that time, if this issue has not been resolved, I am confident that it will be a matter of considerable interest and surely an interesting issue of some

The CHAIRMAN. Mayor, what evidence can you give us? What hard, clear evidence can you give us? We have the board of the League of Cities and the League of Cities is a representative group of mayors.

They are chosen, I understand, on a representative basis and they voted on this, they were aware of the situation, and they voted 13 to 1 in favor. You come before us and say you think a majority of mayors don't take that view.

Some people may say most of the people in the country don't support it. The only poll I have seen shows the majority of people do support assistance for New York.

Can you give us any evidence of your horseback opinion? It may be right.

Mayor RODGERS. That is what it is, a horseback opinion. A conservation with a few other mayors, I think Dick Carver. I think what we have is a board of directors that has been propositioned to take a position. They have taken a position and taken by telephone poll. I am not going to say that it is not the true position of the National League of Cities, but I think that, as I say, the really true feeling will be demonstrated when the National League of Cities convenes.

The CHAIRMAN. Now, Mayor, will you-in the opening part of your concise statement you said that a bailout, for New York City or any other city would be an invitation to irresponsibility. And I couldn't agree with you more. I think everybody will agree with that. This will not be unconditional, however. Then you go on to say if the conditions require sound fiscal management they wouldn't need it.

I have become persuaded that they would need a guarantee by the Federal Government, with the soundest kind of fiscal management from now on to get access to the market to meet their short-term needs over the next 3 or 4 or 5 or 6 months. They have adjusted a deficit in the next 6 months, depending on how you figure it of at least $312 billion.

If they can't go to the market where do they get the money? The guarantee would enable them to go to the market, but on the condition that they work on a reduced budget, that they make no capital expenditures not approved by a supervisory group, conditions which seem to be to me to be important.

Now, what is your answer, is this a timing problem?

Mayor RODGERS. If I properly understood the previous testimony. the critical problems, employee wages, basically seem to be the critical type problem, could be taken care of. These matters could be worked out. And it is the creditors who would have to wait for their money.

My position is, this matter should be worked out between the creditors, the public employee unions and the public officials. In this case, and your question, the creditors are the ones who are going to have to wait for their money, during this period of time.

The CHAIRMAN. Well, that opinion may be correct. But nobody knows. The contracts seem to provide that the creditors will be taken care of. The courts may decide that that would be the case. Mayor Beame indicated it was his best judgment, and, again, the mayor. since he is in a position to know more than the rest of us, he would have to curtail essential services and it may require a massive Federal assistance.

Now, do you feel confident that that will not develop, and, if so, why?

Mavor RODGERS. I think when we get in the courtoom and the judge sets the priorities, there are going to be some deferrals of the creditors' payments. That is the only logical move.