Address to the Conference of Governors.

I AM GLAD to accept your invitation to meet with the chief executives of the States. We are alike facing great emergency problems of government. We are confronted with maintaining the financial integrity of the government--State, Federal, county, and municipal. We, all of us, are struggling to reduce the cost of government. We are struggling to avoid national, State, and municipal borrowings. Our tax revenues have all greatly diminished. We must find new tax revenues to supplement those sources which have been dried up by the depression, so far as our deficits cannot be made up by drastic reductions in expenditures. We must resolutely balance our budgets.

The economic safety of the Republic depends upon the joint financial stability of all our governments. That stability of the Nation is to be attained not alone by the financial stability of the Federal Government. It lies equally in the financial integrity of every State, county, and municipal government. As executives we are charged under our constitutions with the duty to recommend methods and measures to our legislatures to these ends. I know of no more difficult task. Yet the foundations of recovery of business, of employment, and of agriculture depend upon the success of our efforts and the efforts of our legislators.

You are meeting here to consider many phases of these questions. It is to urge the national aspect of our continued State and local financial problems as well as our Federal issues and to discuss some measures of cooperation that I have accepted your invitation to address you today.

A few figures will assist us in considering the cost of government and the extent to which it has increased in the last 20 years, although all such figures are but approximations and have many different bases of calculation. For purposes of illustration I have taken the year 1913 as the last year to reflect prewar conditions, the year 1924 as far enough removed from the actual war years to fairly indicate the trend, and 1930 as the last year for which figures are available.

Expenditures including debt retirement from surplus were approximately as follows:

1913 1924 1930

Federal $700,000,000 $4,100,000,000 $4,200,000,000

State 400,000,000 1,400,000,000 2,300,000,000

Local 1,800,000,000 5,400,000,000 7,500,000,000

Total 2,900,000,000 10,900,000,000 13,200,000,000

1913 1924 1930

Federal $1,000,000,000 $21,300,000,000 $16,200,000,000

State 300,000,000 1,100,000,000 1,800,000,000

Local 3,500,000,000 8,000,000,000 12,600,000,000

Total 4,800,000,000 30,400,000,000 30, 600, 000, 000

The causes which have led to this extraordinary increase in expenditures and debts are familiar. They include the burden on the Federal Government imposed by the war. This accounts for nearly $2 billion of annual expenditures and for most of the increase in the debt. You will observe that outside of the war influence our greatest increase in costs of government lie in local and municipal agencies.

In all our governments, however, Federal, State, and local, enlargement of expenditure and of debts has been caused in part by the increase in population, the rise in commodity prices and wages; by the improvement and new building of roads, streets, waterways, and airways, imposed on us through the development of the internal combustion engine; and by the growing sense of social obligation to improve education and to enlarge activities in behalf of welfare and relief. In addition, I regret to say, increase of government expenditure and of debt has been caused by sectional and group demands and by a large expansion of national, State, and local ventures into business--most of which we perform in a most costly manner. Just as the methods and practices in private business and living have had to be overhauled in this emergency, so also must we overhaul the methods and practices of government.

Today we are clearly absorbing too great a portion of the national income for the conduct of our various branches of government. Using the most reliable figures available, it appears that before the war the total cost of our National, State, and local governments represented only about 8 percent of our national income. In boom times, when we might hope that the national income would increase more rapidly than the cost of government, nevertheless the cost of government actually increased to such an extent that it represented approximately 15 percent of the national income, of which less than 3 percent was directly due to the war. Today, with the falling off of business, the aggregate expenditures of national, State, and local governments probably represent more than 20 percent of the national income.

Before the war theoretically every man worked 25 days a year for the national, State, and local governments combined. In 1924 he worked 46 days a year. Today he works for the support of all forms of government 61 days out of a year. Continued progress on this road is the way to national impoverishment.

Some of the expenditures in government can be reduced by postponement of less urgent matters, some by permanent elimination or curtailment of functions and activities which have been created over the last 50 years in response to the desire for expanded service by the community. These expanded services are some obsolete but many of them meritorious. But every executive is confronted by the fact that they are established by law and can only be reduced by authority of new legislation.

There has been also the growth of useless duplication and waste. Many of you have already pointed out and are today struggling to reduce the multiplicity of local governments. Many of these administrative units have been rendered obsolete by improved communications and transportation. In the Federal Government we have likewise a large number of functions which should be grouped and consolidated.

In an emergency these weaknesses become more apparent, and public attention to government and taxes offers opportunity for their revision. We cannot restore economic stability in the Nation by continuing to siphon so large a part of private effort into the coffers of the government, its abstraction from the people stifles the productivity, the consumption, and the recovery of employment. Nor can we hide our heads in the sand by borrowing to cover current government expenses, for thus we drain the capital of the country into public securities and draft it away from industry and commerce. Thus a dominant national necessity is to reduce the expenditures of all our governments. This is not only the need, it is the universal demand.

I know that every dollar of decrease in expense, every plan of consolidation in governmental activities, touches some sensitive spot where it causes pain and resentment. While the people as a whole demand and applaud these endeavors toward economy, in the large the complaints and threats of sections and groups greatly impede the concrete efforts of all executives and legislators. As a result one of the difficulties that all executives face is the tendency to secure reduction of expenditures at the cost of those services necessary to protection of life, property, defense, and other vital functions rather than to reduce those items which excite the political interest of special groups.

Another of our difficulties is to arrange our reductions of expenditure so as not to work undue hardship upon a vast group of public employees and to be careful that, while we strive on one hand to assist the unemployed by public works, we do not add to the pool of unemployed through dismissal of large numbers of equally deserving public servants. I am in hopes that in the Federal Government we can compass the need of reduced expenditure and at the same time, by introduction of shorter working time for each employee, can give all of them a living, can maintain to them the assurance of recovery of the standards of American life, and can avoid the inhumanity of thrusting them upon the local communities for support against destitution.

The other side of our problem is taxation. It confronts all of us in four phases. First, the need for ultimate reduction in the tax burden. Second, the need, in the existing emergency, for new forms of taxation to replace those sources of revenue which have failed us under present conditions insofar as we cannot possibly offset the whole loss of public income by reduced expenditures. Third, the great problem of duplication in the tax field between Federal, State, and local governments. Fourth, reorganization of the tax basis so as to secure a more just distribution of the tax burden as between the various groups of taxpayers.

Our problem in tax reduction would be a simple equivalent of our savings in expenditures if it were not for the drastic decline in tax receipts--Federal, State, and municipal. This decrease has been of serious dimensions because tax sources, particularly for the Federal Government, and to a lesser extent State and municipal governments, are dependent upon business activity, upon profits and income. The revenues of the Federal Government have diminished over 50 percent, and this mainly in one group--the income taxes. And in result the contract obligations alone of the Federal Government exceed our tax income. As a result of the decreased income all of our governments, national, State, and municipal are frantically searching for new sources of taxation. In this process we are too often duplicating taxes upon the same sources. No matter how we disguise it with names such as "excise, .... luxury," or "sales," the result is the same; the National, State, and municipal governments are competing with each other for revenue from business activities. We are all seeking further revenue from income and estate taxes. While the National Government imposes no direct taxes on real property, the State and local governments are all pressing upon each other in taxing it. This same real estate indirectly bears in part the taxation which the Federal Government lays on profit and income. It all reflects in the rent. All these cross purposes contribute to economic duress. The many provisions of multiple taxation may vary so much that a taxpayer coming under several jurisdictions may find himself paying a wholly unreasonable amount for the support of government. The tax levies of the various taxing authorities all constitute a burden on the national income, and in times of depression, when the relative weight of that burden is increased, lack of coordination in the system becomes a matter of prime importance.

One of the taxes which is responsible for a disproportionate part of the hardship of our present tax system is the general property tax. While the National Government imposes no such tax, the State and local governments rely heavily on it for revenue. The taxes upon real property are the easiest to enforce, and are the least flexible of all taxes. The tendency under pressure of need to continue these taxes unchanged in times of depression, despite the decrease in the owner's income, places undue drag upon that segment of the community in which real estate is the chief property item. Decreasing prices and decreasing income result in an increasing burden upon property owners, both in rural and urban communities, which is now becoming almost unbearable. The tax burden upon real estate is wholly out of proportion to that upon other forms of property and income. There is no farm relief more needed today than tax relief, for I believe it can be demonstrated that the tax burden upon the farmer today exceeds the burden upon other groups.

With view to making a suggestion that may be timely to this subject--that is, the conflict between methods of taxation in different segments of government and consideration of the whole question of distribution of the burden of taxation, it seems to me urgent that we should, all of us, through our financial officers give renewed examination to this subject in the light of conditions today and by exchanges between them reconsider the possibilities of the whole problem of better coordination, greater simplicity, and above all, better adjustment of the burdens among our people.

Gentlemen, the purpose of my address is to express a desire for greater cooperation and coordination of our mutual problems. Just as you are meeting here today to develop helpful action out of common experience, I take the liberty of suggesting to you that similar conferences and examination of problems by the executives of your local governments in each State would be productive of useful results. It would help toward a realization that local expenditures and taxes are a part of a great national problem in stability as well as one of local concern. It would contribute to their resolution to bring about constructive economy and cooperation.

We, as executives, all agree upon the absolute necessity in the interest of the Nation as a whole of reduced expenditures, of better distributed taxation, of balanced budgets. Our town councils, our county commissions, our State legislatures, and the Congress agree upon these fundamentals. That is the sure highway toward national recovery. But to accomplish these things we must have the intelligent support of the people themselves, that selfish vested interest and vested habit do not, by their organized sectional and group oppositions or individual action, defeat these high purposes.

Especially do I take this occasion to pay tribute to the courage shown by our public officials, both executive and legislative, in these problems. Their task is no light responsibility. This duty offers no rosy path to popularity. Rather, it is one to invite the anger of established interests. With the utmost care that can be exercised by the executive officers and the legislators throughout the Nation, and with the utmost goodwill, it is bound to cause individual hardship and to grieve the friends of many worthy causes. Nevertheless, the duty is inexorable, and its discharge rests inescapably upon all public officers. Its final results will redound to the general public benefit. Therefore, I say to the public: Be patient, be helpful, recognize the complexity and the difficulty of the problem before these servants of your combined public interest. Support them in their task, for upon its successful conclusion depends a most momentous contribution to our united security, our hope of an early return to stability, and the common welfare of every man, woman, and child in our Nation.