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the last Congress for coastal zone management, while still giving priority attention to this area of the country which is especially sensitive to development pressures”.

Specifically, H.R. 4332 would authorize a two-phase program of grants to be administered by the Secretary of the Interior. In that cost-sharing grants would be awarded both for program development and for program management, H.R. 4332 is similar to H.R. 3492, H.R. 2493 and H.R. 3615. The Administration proposal differs from the bills under consideration, however, with respect to the scope of a State's planning activity and, indeed the number of States eligible for assistance. To assure that coastal zone and estuarine management receive the priority attention of coastal States, H.R. 4332 would identify the coastal zones and estuaries as "areas of critical environmental concern” and require that a State's land use program include a method for inventorying and designating such areas. Further, the Secretary would be authorized to make grants for program management only if State laws affecting land use in the coastal zone and estuaries take into account (1) the aesthetic and ecological values of wetlands for wildlife habitat, food production sources for aquatic life, recreation, sedimentation control, and shoreland storm protection and (2) the susceptibility of wetlonds to permanent destruction through draining, dredging, and filling, and the need to restrict such activities. Most important, perhaps, funds for program development and management would be allowed to the States under regulations which must take into account the nature and extent of coastal zones and estuaries.

Of the manmade threats to coastal environments described by the Council on Environmental Quality in its First Annual Report, most have their origin in heavily populated land areas at or near the water's edge. But others can be traced further inland, where eventual impact upon the coastal environment is not so easily recognized. Thus, while pressures become most intense at the point where land meets water, many cannot be alleviated without truly comprehensive planning. This fact, and the related absence of any precise geographic definition for the coastal zone, lies behind the integrated approach embodied in H.R. 4332. It may be noted that several States, coastal and inland, have already expressed a commitment to this concept. We urge that the Congress and your Committee, so effective in its concern for sound management of the coastal zone, join in this initiative to encourage planning for effective management of all the Nation's lands and waters.

The Office of Management and Budget has advised that there is no objection
to the presentation of this report from the standpoint of the Administration's
Sincerely yours,

Assistant Secretary of the Interior.

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Washington, D.C., June 24, 1971.
Chairman, Committee on Merchant Marine and Fisheries, House of Representa-

tives, Washington, D.C.
DEAR MR. CHAIRMAN : Thank you for the opportunity to comment on H.R. 2492,
a bill “To provide for the effective management of the Nation's coastal and
estuarine areas," and H.R. 2493, a bill “To assist the States in establishing
coastal and estuarine zone management plans and programs.” Essentially, H.R.
2492 would empower the Administrator of the National Oceanic and Atmospheric
Administration (NOAA) to make grants, subject to certain limitations, to State
coastal authorities for the purpose of developing long-range planning and man-
agement of their respective coastal and estuarine areas. Further, the Administra-
tor would be authorized to underwrite a guarantee, bond issue, or loan obtained
by a coastal State for land acquisition, water development, or restoration proj.
ects undertaken pursuant to a coastal or estuarine area management plan. Such
plans would require approval by the Administrator as one condition to the mak-
ing of a grant or underwriting loans, etc.

H.R. 2493 also would encourage coastal States to develop effective manage ment plans for coastal and estuarine areas subject to competitive uses. Encouragement would assume the form principally of grants by the Secretary of

the Department of Commerce to such States for the purpose of assisting in the development and administration of management plans and programs. The Secretary also would be authorized to underwrite bond issues or loans incurred by coastal States for the purpose of land acquisition, or land and water development and restoration projects accomplished in accordance with approved management plans and programs. The Secretary would be required to submit an annual report to the Congress, through the President, setting forth the undertakings and programs in the administration of this legislation. Finally, effective interagency coordination and cooperation would be required in accomplishing the objectives of the bill.

The Smithsonian Institution agrees that (1) the coastal and estuarine zones are ecologically fragile; (2) there are increasing and competing demands made upon the lands and waters of our coastal and estuarine zones; and (3) an integrated management and planning mechanism is necessary for effective development and protection of coastal and estuarine resources. Accordingly, the Smithsonian supports the basic objectives in H.R. 2492 and H.R. 2493. However, it should be noted that the Administration's comprehensive “National Land Use Policy Act of 1971” (introduced as H.R. 4332) also gives concrete recognition to the importance of the Nation's coastal and estuarine areas, by encouraging the coastal States to adopt special protective measures pertaining to these areas. For this reason, although the Smithsonian supports the general objectives of H.R. 2492 and H.R. 2493, the Institution defers to the views of the Council on Environmental Quality and the Department of the Interior regarding the specific provisions set forth in those bills.

The Office of Management and Budget has advised that there is no objection to the presentation of this report from the standpoint of the Administration's program. Sincerely yours,

S. DILLON RIPLEY, Secretary.


Washington, D.O., June 28, 1971. Hon. EDWARD A. GARMATZ, Chairman, Committee on Merchant Marine and Fisheries, House of Representa

tives, Washington, D.C. DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on H.R. 2492, “To provide for the effective management of the Nation's coastal and estuarine areas,” and H.R. 2493, "To assist the States in establishing coastal and estuarine zone management plans and programs."

The bills would authorize Federal guarantees of obligations issued by coastal States for land acquisition, water development, and restoration projects. H.R. 2492 would provide that the interest on any obligation so guaranteed is not exempt from Federal taxation. H.R. 2493 would not alter the tax status of obligations guaranteed under the bill. Thus, H.R. 2493 would result in Federal guarantee of tax-exempt obligations.

The bills raise a number of questions of overall Federal credit program policy, including problems with Federal guarantees of tax-exempt obligations and the need to husband. Federal credit resources. The enclosed statement by Assistant Secretary Weidenbaum before the Subcommittee on Oceans and Atmosphere of the Senate Committee on Commerce on S. 582, a similar bill, contains a detailed discussion of the Federal credit program policy questions which are also raised by H.R. 2492 and H.R. 2493.

The Department has been advised by the Office of Management and Budget that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee. Sincerely yours,


Acting General Counsel. Enclosure.


TREASURY FOR ECONOMIC POLICY MR. CHAIRMAN: I am pleased to be here today to express the views of the Treasury Department on S. 582, a bill to establish a national policy and develop a national program for management, beneficial use, protection, and development of the land and water resources of the Nation's coastal and estuarine zones.

The Administration has provided this Committee with comments on S. 582 and its relationship to the legislation proposed by the Administration, the National Land Use Policy Act, which has been introduced in the Senate as S. 992.

My comments will be addressed to the issues raised by the provision in S. 582 which would authorize Federal Government guarantees of obligations the interest on which would be exmpt from Federal income taxation.

S. 582 would add a new title III to the Act of October 15, 1966, and the proposed new section 307 would authorize the Secretary of the Interior to guarantee obligations issued by coastal States for the purposes of land acquisition, or land and water development and restoration projects. The total amount of guaranteed obligations outstanding at any time could not exceed $140 million.

As stated in the Treasury Department's report of April 14, 1970 to Chairman Magnuson on S. 3460, 91st Congress, which is similar to S. 582, the Treasury Department opposes Federal guarantees of tax-exempt obligations because of four fundamental problems raised by such guarantees :

1. The guarantee of tax-exempt obligations is an inefficient form of subsidy since the Federal tax revenue loss exceeds the interest savings to the borrower because of the tax-exempt feature. For example, a guaranteed bond might sell in the current market at 5 percent on a tax-exempt basis and 7 percent on a taxable basis, in which case the tax-exempt feature would result in a savings to the borrower of 2 percent. Yet an investor in the 50 percent Federal income tax bracket would net only 312 percent after taxes on a 7 percent taxable bond. Thus, only 2 percent of the 342 percent Federal revenue loss would be realized by the borrowing public body.

2. The guarantee of tax-exempts disproportionately benefits investors in the higher Federal income tax brackets. That is, an investor in the 30 percent tax bracket receives roughly the same income after taxes on a 7 percent taxable bond and a 5 percent tax-exempt bond with the same Federal guarantee; but an investor in the 70 percent tax bracket who holds a 5 percent tax-exempt bond is receiving as much interest after taxes as he would on a 17 percent taxable bond.

3. Such guaranteed obligations heighten the competition for the limited amount of funds available to State and local borrowers from high tax bracket investors and raise the cost of financing other local projects for which direct Federal credit aid is not provided. For instance, a local public body might be required to pay a higher interest rate on its school bond issues if potential investors were attracted instead to the added supply of tax-exempt bonds with Federal guarantees.

4. Such guarantees conflict with Federal debt management policy by creating a class of securities (tax-exempt) which the Federal Government itself is prohibited from issuing by the Public Debt Act of 1941.

In addition to our concern with the problems resulting from Federal guarantees of tax-exempt obligations, we are also concerned with the growing tendency to rely on direct Government support of borrowings in the private market.

There have been several studies in recent years by the Administration, the Congress, and others of the various methods of providing Federal credit assistance to States and local public bodies as well as to private borrowers. The general conclusion from these studies has been that the provision of credit in our economy is properly a function of private lending institutions and that direct Federal credit assistance should generally not be provided except in cases where borrowers are unable to obtain credit on reasonable terms in the private market for programs of high national priority.

In this regard, section 307 would permit full Federal guarantees of tax-exempt bonds for any borrowings for the purposes set forth in that section. Thus, all eligible borrowers might be encouraged to seek this Federal credit aid regardless of the borrower's ability to obtain funds from normal private market sources. The guarantee would effectively shift to the Federal Government the investment risk normally entailed in these obligations so that they would sell on the market at rock bottom interest rates along with other top rated securities. It is easy to see how widespread availability of Federal guarantees would quickly lead to Federal intervention in credit activities throughout the economy.

The Treasury Department is not itself aware of the specific problems which coastal States might have in borrowing for the purposes stated in S. 582 in the private market without Federal guarantees of their obligations or, indeed, whether the States desire to borrow for these purposes.

We are especially concerned with the need to busband Federal credit resources, just as we do Federal budget resources, in view of the current large increases in Federal credit programs which are financed outside of the Federal budget. In the Budget for the fiscal year 1972 it is estimated that the amount of such Federally-assisted loans outstanding will increase by $30 billion compared to an increase in fiscal 1970 of $13 billion.

In his Budget Message to the Congress on January 29, 1971 the President stated :

Furthermore, the Federal credit programs which the Congress has placed outside the budget-guaranteed and insured loans, or loans by federally sponsored enterprises-escape regular review by either the executive or the legislative branch. The evaluation of these extrabudgetary programs has not been fully consistent with budget items. Their effects on fiscal policy have not been rigorously included in the overall budget process. And their effects on overall debt management are not coordinated well with the overall public debt policy. For these reasons, I will propose legislation to enable these credit programs to be reviewed and coordinated along with other

Federal programs. The Treasury Department is currently working with other agencies in preparing the legislation referred to by the President and we hope to be in a position soon to submit a proposal to the Congress.

I understand that your Committee wishes to consider the feasibility of alternative methods of providing credit assistance under S. 582 and that you would also like to discuss the collateral issues raised by the various alternatives.


Looking at the problem just from the standpoint of financial efficiency, the most direct, and least expensive, method of financing is direct Federal loans. That is, the Treasury Department is able to borrow at lower interest rates than would be required on the market obligations of other borrowers. Direct Federal loans would, of course, require direct budget outlays. Limited budgetary resources in recent years have not permitted significant expansion of direct Federal lending, and it appears in some cases that the Congress is unwilling to rely on the availability of budget funds to finance Federal credit programs.


In order to avoid both the budget outlay problems with direct loans and the tax-exempt interest problem with loan guarantees the Congress provided last year for a new method of financing, namely, Federal guarantees and interest subsidies on taxable municipal bonds. This new financing technique was first authorized in P.L. 91–296, the Medical Facilities Modernization Act of 1970. In that case, which involved Federal credit aid to public bodies for hospital facilities, the Administration submitted legislation proposing guaranteed loans for private hospitals and, in order to avoid the tax-exempt bond guarantee problem, direct loans for public bodies. Yet both the Senate and House committees considering this legislation recommended instead Federal guarantees of tax-exempt obligations.

In the Congressional consideration of the medical facilities bill there was no apparent disagreement between the Administration and the Congress regarding the problems created by tax-exempt bond guarantees. Nevertheless, the committees apparently felt that guaranteed loans to public bodies, since they would not depend upon the availability of direct loan funds in the budget, were essential to assure the availability of credit aid. Under the circumstances the Administration agreed to a Senate amendment to the House-passed bill, which was subsequently enacted in P.L. 91–296. That amendment provided that the obligations could be purchased by the Federal Government from a revolving loan fund then resold in the private market with a guarantee. When resold the interest on any obligations guaranteed under that Act would be subject to Federal income taxation notwithstanding the fact that they were obligations issued by States or oher public bodies. Similar provisions were later enacted by the Congress for the rural water and sewer loans of the Farmers Home Administration (P.L. 91-617). A somewhat different approach was taken for new community loans guaranteed by the Department of Housing and Urban Development (P.L. 91-609). Under that act the new community obligations can be issued directly in the market by the public bodies on a taxable basis. Thus the Congress in 1970 provided for the first time for Federal guarantees of taxable municipal obligations and did this in three separate acts.

The Farmers Home loans and the medical facilities loans are expected to be made directly by the Federal agencies at low interest rates and then sold in the private market with a Federal guarantee and supplemental interest payments to the investor in whatever amounts necessary to meet the market. The new community loans will be made and held by private investors but will also receive a Federal interest subsidy and guarantee. The Treasury Department and the Administration supported these provisions as preferable to guarantees of taxexempt bonds and in recognition of the urgent needs for Federal credit assistance in these three areas.

CONSOLIDATED FINANCING Another approach to providing credit assistance to local public bodies is the Environmental Financing Authority proposal by the President in his Environmental Message to the Congress on February 8, 1971.

The Environmental Financing Authority would purchase tax-exempt obligations issued by local public bodies to finance the non-Federal share of the costs of the construction of waste treatment facilities eligible for Federal grants from the Environmental Protection Agency. EFA could purchase only obligations guaranteed by EPA and only if the issuing public body is unable to borrow in the market on reasonable terms. EFA would finance its purchases by selling its own securities in the market, and appropriations would be authorized to cover the difference between EFA's taxable borrowing rate and its tax-exempt lending rate.

The EPA legislation (S. 1015) would permit a more efficient method of financing as compared with the approach taken in the three bills enacted last year for Federal guarantees of taxable municipal bonds. That is, EFA as a corporate body empowered to issue its own ob ations in the market would have the advantages of consolidated financing and an ability to adjust the timing, maturities, and other terms of its issues to changing market conditions in order to minimize its borrowing costs. Also, since there is an established market for Federal agency securities, EFA would be able to mobilize quickly the funds necessary to meet the urgent needs for waste treatment facilities.

While the EFA approach may be the most efficient method, short of direct Treasury financing, of providing Federal credit assistance for certain programs, the Administration considers that the use of this approach beyond assisting the financing of waste treatment facilities is not justified at this time. In this connection, I would particularly like to stress our objection to use of the EFA approach on a program by program basis, the inevitable result of which would be to move toward the establishment of a number of small Federally sponsored agencies competing with each other in the capital markets in the funding of new and comparatively modest Federal financial assistance programs.

In conclusion, we feel that Federal credit assistance should be authorized only for programs of high national priority and only for borrowers who are unable to meet their needs in the private financial markets. In those cases where the need for Federal credit aid is clearly established we believe that the financing should be conducted in the most efficient manner available and in the taxable rather than in the tax-exempt market. I would like to stress again, as indicated in the President's statement on credit programs in the Budget Message, that leg. islation will be proposed to facilitate overall review and coordination of both the financial and budgetary aspects of Federal credit programs which are financed outside the regular budget. Pending the enactment of this legislation we would recommend against the establishment of additional programs of Federal credit aid except for the most urgent credit needs.

This concludes my remarks on the provision of S. 582 of major concerns to the Treasury and on several alternative methods of Federal financial assistance that have recently been enacted or proposed by the Administration. I would be happy to answer any questions you may have.

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