Social Security trust funds are losing millions of dollars in interest because state and local governments are holding employe contributions to the retirement program as a quick source of revenue before turning them over to federal authorities, according to the General Accounting Office.
Had the funds been paid into the Social Security Adminstration's coffers on a monthly rather than a quarterly basis since 1961, the GAL estimates they would have earned $1.1 billion in additional interest. Instead, state officials have been investing the contributions on a short-term basis or using them to improve their cash flow.
Were the practice to continue, the SSA would forego another $1 billion in interest between 1980 and 1984, a GAO report calculates. And the GAO doesn't believe cities and states should get a free ride at the expense of Social Security.
For years, the SSA has been trying without success to get the states to turn over the funds more quickly, just as private industry does. But the organized opposition of the states, backed by many congressmen was too strong. Besides, there wasn't that much money involved.
Finally came public recognition last year that Social Security, which will collect $130 billion from American workers and employers in 1979, was in danger of going broke unless payroll taxes and income ceilings were raised. Evens with the new schedules that go into effect next week, Social Security will still run a deficit-currently $5 billion-until 1981.
Realizing that every few hundred million dollars help, the Department of Health, Education and Welfare, which collects Social Security from the states, proposed last March that the funds be deposited monthly, as they were before 1959. Almost three-quarters of state and local government employes are covered by Social Security; their payroll taxes amounted to more than $10 billion in 1977.
HEW Secretary Joseph Califano estimated that even with the earlier payments, the states could still earn a minimum of $50 million annually from prudent short-term investments. This, he said, should compensate them for any administrative costs they might incur in forwarding the contributions more often.
Three bills were introduced in the outgoing Congress, principally by Rep. Robert A. Roe (D-N.J.), to permit states and local governments to continue making Social Security deposits on a calendar-quarter basis. State and local governments have been over-whelmingly opposed to any change in the payment system.
HEW offered a compromise in November. Starting in July 1980, it said, contributions will be paid monthly for the first two months and quarterly for the third. For example, Social Security taxes for January and February will be due Feb. 15 and March 15 respectively. But those for March will not be due until May 15, government shorthand For HEW's plan, which it termed a "reasonable accommodation," is 15-15-45.
Under this plan, the trust funds would earn $204.2 million less in interest income than they would under the monthly (15-15-15) plan between July 1980 and June 1985. Were the current quarterly system maintained, the interest loss to SSA would be five times as much.
Legislation died in the last session because the HEW regulations weren't scheduled to take effect anyway until 1980. A Ways and Means subcommittee staff member said it is likely to be introduced in the next Congress. Its passage-and ultimate rescue from a presidential veto-will depend on the state of the economy, the fiscal health of the cities and states and, of course, the temper of the electorate.
At the other end of the political spectrum stands inevitably the GAO. The government watchdog would really like to have Social Security taxes remitted to the federal government every two week. In this way SSA would lose only $76.6 million in potential interest payments between 1980 and 1984. GAO reasoned that since more than half the state and local government employes are paid semi-monthly, it would be just as easy to turn over Social Security as withholding taxes.
At the very least, GAO has called on Califano to restore the 15-25-25 formula. The Comptroller General's report concludes: "GAO stil believes that the regulations . . . are not in the best interest of the trust funds since they do not maximize interest earnings to the trust funds.
"GAO further believes that financial assistance to states should be specifically legislated and not provided at the expense of the trust funds."