today. I believe, Senator, you have copies of this brief, and if you haven't, I have plenty of them here.

Senator LEHMAN. Will you identify yourself for the record? Mr. HUNT. My name is Jarvis Hunt. I am general counsel for the Associated Industries of Massachusetts.

It is a privilege for me to attend this hearing on behalf of the Associated Industries of Massachusetts, the only statewide association of manufacturing employers. Our membership is responsible for approximately 90 percent of the industrial payroll in Massachusetts.

On August 31 and September 10, 1954, Hurricanes Carol and Edna struck the New England States, causing millions of dollars worth of damage, not only as a direct result of windstorm and rain but also as the result of the inundation of coastal cities and towns and settlements by the tremendous floods of sea water pushed ashore by the force of the hurricanes.

On this occasion in 1954, a hurricane water and flood damage committee of this association was formed. As a first step, a survey of the AIM membership of approximately 2,000 companies was made in order to determine the value of industrial property exposed, the extent of losses, and the extent of interest in some measure of insurance, if available at reasonable cost.

The results of that survey are typical of the flood-insurance problem, in that only a few manufacturers suffered staggering losses. For example, the survey disclosed that almost 70 percent of the estimated industrial loss was suffered in the New Bedford area. Only 7 percent of the entire membership considered themselves subject to water damage-rising waters or flood-and a large proportion of these indicated an interest in insurance if the cost were not only reasonable but low. The AIM committee met with representatives of the insurance industry to urge upon it the desirability and need for coverage of this nature. It is probably most accurate to say that the insurance group, relying on the insurance executives' report of 1952, felt that the certainty of very large losses, the difficulties of establishing anything but high rates, and the problems of adverse selection of risk precluded the offering of such coverage at a marketable rate.

Representatives of the Associated Industries of Massachusetts appeared before the Senate Public Works Subcommittee on Rivers and Harbors in support of a survey study to make our coastal waters, particularly in the New Bedford and Massachusetts areas, as floodproof as possible. A good proportion of this survey has been accomplished but it needs additional funds which are included in the New England governors' conference recommendations of September 23, 1955, and which our committee specially endorses.

With the torrential rains accompanying Hurricane Diane this August 1955 the losses in Massachusetts, as well as in Rhode Island and Connecticut, were not only greater but far more extensive than previous storms. The latest figures indicate a total of $100 million in Massachusetts alone, of which $55 million is the industrial figure. This has naturally increased the sense of urgency, the determined support for protective measures, and reconsideration of the possibilities of insurance.

The AIM flood committee being primarily occupied with the intricacies of relief measures and facilities has not resurveyed or polled

the total AIM membership. It has met and determined a number of policy positions with that total membership in mind, and it is in the capacity of a representative of the Associated Industries of Massachusetts flood committee that I appear before you today.

This flood committee has considered this problem broadly as involving three areas of action, namely, flood control, more adequate tax relief, and flood insurance. Although this committee today, as I understand it, is primarily considering the insurance issues, it will most accurately reflect the position of our committee if I may be permitted to mention all three areas.

First, as to flood control, the Associated Industries of Massachusetts committee endorses the New England governors' conference position. in its entirety. Primarily this calls for an expenditure of $34 million for construction of dams, reservoirs, and diversions in New England, less than one-half of which will actually involve Massachusetts projects per se. In addition to this there would be $12 million for navigation on rivers and harbors work and $4.9 million for necessary additional planning funds in order to execute this greatly needed construction.

We are especially concerned with a further appropriation of $1.2 million to expedite and conclude the hurricane survey of coastal waters referred to above.

Although this prevention program does not include all the necessary projects needed for the area, it does represent an immediate concrete program which has already been authorized by Congress and needs only appropriation.

The AIM committe unanimously concurs in the opinion that this is the most necessary, valuable, widely beneficial and appropriate form of Federal expenditure for protection from flood damage in this region. As Professor Harris told you this morning, the adverse ratio of taxpayments to the Federal Government from this area compared with benefits received would alone justify these recommendations in our opinion, irrespective of the tremendously increased hazard and storm incidence that now faces this densely populated State whose plants and towns are built on the banks of its many small rivers, each of which is potentially dangerous in time of flood.

I might mention in view of Professor Harris' statement this morning in regard to the Hoover committee, first, that I think that this is perfectly proper work for the Federal Government to do; secondly, that I think that Professor Harris has misinterpreted the report of the Hoover committee. There was a study task force of the committee staff report which recommended that the localities themselves handle these things, but this report, Senator, was not adopted.

In the Hoover committee's report there were merely two recommendations, one the formation of the national policy on flood control, the other the taking from the Soil Conservation Division of the Department of Agriculture the flood control projects and turning them over to the Army engineers.

So I think that we will find there is practically no opposition or no recommendations against Federal flood control.

Senator LEHMAN. I want to let you know I have a telegram from Mr. Edward A. Sherman, regional director, Citizens' Committee for the Hoover Report, which I intend to put into the record at the conclusion of your remarks.

Mr. HUNT. Thank you, Senator.

Senator LEHMAN. That may throw some light on it.

Mr. HUNT. Secondly, the AIM flood committee unanimously concurs in the opinion that a number of Federal income-tax provisions could greatly reduce the shattering impact of flood losses upon the economic organizations which produce the wealth and well-being of the region. Such provisions would include, for example, the election to take current costs of replacement of property destroyed or damaged as a deductible item, or provision for estimating reserves for selfinsurance I believe Mr. Young mentioned these as well-or election to take new flood control or other casualty prevention projects as a deduction.

A provision analogous to this last is already available to farmers for soil and water conservation under section 175 of the Internal Revenue Code with certainly no greater apparent justification.

Alternatively, rapid depreciation of capital expenditures over 3, 4, or 5 years including plant relocation to avoid future losses would be most beneficial and also directly tie in with the best flood-control efforts.

Again, permission to terminate the taxable year following casualty loss and thereupon claim tentative carryback adjustment under section 6411 of the code would greatly facilitate rehabilitation and supply immediate needs.

Similarly, a number of proposals for the immediate benefit of employees make good sense as, for example, permitting the employer to refrain from further withholding tax where the employee is not expected to have taxable income at all because of casualty; a prompt refund of the withholding tax where the employee suffers a casualty loss; or, further, a prompt refund of prior year's taxes based on net operating loss carryback for individuals.

It is worthy of note that there is already the organization and machinery in the Internal Revenue Service to execute and control the specific application and individuality of needs inherent in all casualty losses through such an approach. No further appropriation of Federal funds or extension of governmental functions is necessary to grant this relief.

Third, the AIM committee welcomes the concerted efforts of this committee and its staff, that of our Senators Kennedy and Saltonstall, the administration, and the Housing and Home Finance Agency, as well as certain insurance spokesmen and others who have all determined that the difficulties and complications of some form of insurance are not insurmountable. We recognize both a need and the desirability of development here. We applaud the recognition in the measures formulated in bills before this group that we are on the frontiers of insurance problems in dealing with large-scale disasters, that the history of the insurance industry promises further development, and that naturally the facilities, skills, and services of the insurance industry are to be utilized.

As an employer group in a competitive economy, we are concerned with both (1) the immediate cost to be shouldered by individual economic units in the free market and (2) the method and controls on Federal subsidies, if such are to be involved. On the basis of our present understanding of the measures now before this committee,

we are not prepared to say that these two concerns have been sufficiently clarified or resolved to warrant a more specific endorsement. I wish to thank this committee for the opportunity to have appeared here today in the hope that the considered views of the Flood Committee of Associated Industries of Massachusetts may be of some help. Senator LEHMAN. Is my memory correct that until quite recently many of the industries of the State have objected to flood control because of their fear it might develop public power?

Mr. HUNT. There has been some objection, particularly, of course, from the point of view of public utilities. Our association represents manufacturers. There have been some manufacturers, those who generated their own power, who have objected to that. But I think that was mainly because in some of the proposals for flood control there was tied in Federal power proposals. I think there have been no objections to flood control purely as such.

Senator LEHMAN. I know.

Mr. HUNT. That is right.

Senator LEHMAN. Then my recollection is correct that that has been there for a considerable length of time.

Mr. HUNT. You are right.

Senator LEHMAN. I won't make a statement it exists today, because I think the point of view has changed.

Mr. HUNT. I think it is changing.

Senator LEHMAN. But there was that opposition to flood control because of the fear it might bring about development of public power? Mr. HUNT. That is right.

Senator LEHMAN. There is one other question I want to ask you. I am deeply interested in the prosperity of industry, in every State of the Union, of course, and I certainly want to see full justice done to industry. But it seems to me that while they must be protected, their interest must be safeguarded, the one in the unfortunate position is the little fellow, the little householder who has seen his home destroyed or damaged and who has nothing left except a mortgage that he has to pay is far more serious and burdensome than the plight of some manufacturers, much as I deplore that plight.

As I understand it, if a company suffers a loss, let us say, of $500,000, and its earnings are in excess of $500,000, he can deduct that loss of $500,000 from his corporation tax, which, if my recollection is correct, is 52 percent now. Is that not a fact?

Mr. HUNT. Unfortunately, Senator, it isn't quite as easy as that. The only loss that he can deduct is the depreciated value. He cannot deduct the replacement value or any reserve set up for replacement, and that is one of the elements in regard to tax relief that we think should be given very serious consideration.

Senator LEHMAN. Of course, that I know is a criticism of our tax laws. I mean so far as they refer to depreciation. That is quite a separate thing. We are going to look into this question and possibly make recommendations, although the committee will certainly not be able to speak for the Finance Committee to which, of course, all tax legislation goes.

But what I was bringing out was the little fellow might have a loss of five or ten thousand dollars and has an income of two or three thousand dollars, and he cannot write that off. If he writes any part of it, he can write it off at a very, very, very low rate of interest. He has

no protection because he has double liability if he goes and borrows money.

The situation is a little bit less burdensome or considerably less burdensome in the case of industries. I am talking about the large industries that may be affected.

Mr. HUNT. That, of course, is true. The small fellow can write off a loss insofar as it is not covered by insurance, but with his small income, of course, that is of very little help to him. I see your distinction between that case and the case of the industrial concern with the large income and not proportionally larger loss. That is true.

Senator LEHMAN. The reason I mention that is not in any way to show lack of interest in the success or prosperity of business, because their success and prosperity, of course, affect the entire economy, but merely to emphasize that we must not lose sight of the little fellow. Mr. HUNT. That is true.

Senator LEHMAN. He has disabilities and disadvantages that do not always show. In the case of a wealthy man who may have lost his home, he can write it off. If he has a large income it does not cost him much.

Mr. HUNT. That is right.

Senator LEHMAN. It does not show to the same extent in the case of the larger corporations. But it is a tragic thing, a notably tragic thing, when it happens to a fellow who has seen his home disappear or damaged so badly that it is virtually valueless.

Mr. HUNT. You are entirely right, Senator, and we are mindful of that. You will note in some of our tax recommendations in this brief we suggest that he be given a refund of his withholding tax when he has a casualty loss, and that that be immediate.

Senator LEHMAN. I thank you very much for your testimony. I do want you to know that our staff has been working on some of the very things that you very clearly outline here today.

Mr. HUNT. I know.

Senator LEHMAN. And they will continue to work on it. We have voluminous information already on many of these things.

Senator BUSH. Mr. Chairman, on this question of opposition to flood control that the chairman raised, I think it should be pointed out that flood-control devices, flood-control dams, are absolutely antipathetic to power development. One defies the other, so to speak. I think the gentleman is correct that back in 1944 or 1945 when we did authorize some projects and built a few, which, incidentally, have proven their worth recently many times over, there was some opposition in certain areas by public utilities. But it was mostly on a fear basis and not realistic, because a protective dam has got to be kept empty or nearly empty to be of any use. A power dam has got to be kept full to be of any use. So that I do not think we should encounter any intelligent opposition to the flood-protection works that we do want to implement with appropriations with that understanding abroad now, which I think it is.

As far as New England is concerned, unfortunately, the possibility for power development on our rivers is very, very limited indeed. We have not been able over the years, despite ingenuity, market, and everything else, to develop much power.

Senator LEHMAN. Senator Kennedy?